Originally published in Bachmann Group Communiqué: Issue 3 August 2004

There has been enormous publicity over the changes in the pension legislation which are to be introduced from April 2006. One of the effects of this legislation is that corporation tax relief on company contributions to a FURBS - a Funded Unapproved Retirement Benefit Scheme - (usually for identified senior employees) will cease with effect from 1 April 2006. Additionally, the IHT shelter provided by FURBS established after that date will disappear. There is therefore a window of opportunity between now and April 2006 to ensure that companies maximise contributions to a flexible vehicle for their employees' benefit. The executive can influence the investment policies of the trustees and can even access the pension savings, pre-retirement, by seeking loans from the trustees.

Bachmann can set up a FURBS either UK resident or resident offshore (Guernsey). Each jurisdiction has its merits, and these need to be discussed to ensure that the correct choice is made. The major advantage of a UK resident FURBS is that, on retirement, the pension beneficiary may take the whole of the fund in the form of tax free lump sum, having attracted low rates of tax on the fund assets. However the taxation of trusts is under review, and this favourable rate of taxation may change.

The major advantage for a Guernsey resident FURBS is a low rate of tax on investment income and the avoidance of any Capital Gains Tax liability on the disposal of its assets, as well as offering greater flexibility in pension provision - but there is no facility for the tax free sum on retirement.

To be considered a "retirement benefit scheme" (hence attracting tax relief for the contributing company), all FURBS must provide for a pension to be payable at age 75 (latest) - but Guernsey trustees are not obliged to purchase an annuity with the pension funds - they may provide this pension from the income arising from the trust assets if they and the pension beneficiary wish. Thus, the "corpus" of the trust can be maintained, sheltered from inheritance tax, for the benefit of the executive's dependants.

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