Trusts for particular purposes: employment-related trusts -funded unapproved retirement benefits schemes (FURBS) (up to 5 April 2006)
On 6 April 2006 the employer financed retirement benefits schemes (EFRBS) rules were implemented. Prior to that date, the equivalent was a funded unapproved retirement benefits scheme (FURBS). Guidance on unapproved retirement benefits schemes is from EIM15400.
It will usually be clear from the title of the trust that it was set up as a FURBS. But the title may sometimes include another description such as
- funded unapproved pension plan
- supplementary benefits plan
- sponsored superannuation scheme
- supplementary life assurance scheme
- pension and death benefits plan (or scheme)
- retirement and death benefits plan (or scheme)
Rate of tax on income up to 5 April 2006
Sections 612 and 682 (2) c ICTA 1988
Income arising to FURBS trustees from the invested contributions was usually chargeable at the lower/basic/ordinary trust rate only and escaped the charge applicable to trusts/dividend trust rate. For the exemption to be given, the FURBS must have been established for the sole purpose of providing relevant benefits within the meaning of section 612 ICTA 1988.
The exemption does not apply and the FURBS trustees are chargeable at the rate applicable to trusts/dividend trust rate, if the trustees
- have trading income and/or
- invest the contributions in a way that does not give a commercial return, for example
- noncommercial rate loans
- investing a significant part of the funds in non-income producing assets.
Similarly, if the trustees use the contributions to provide benefits that are not within the definition of relevant benefits the exemption will not apply. It may also be an indication that a member is a settlor, in which case the settlements legislation may treat the schemes income as the settlor`s were:
- non-commercial rate loans are made to a member
- occupation allowed of trust property, either rent free or below open market rates
- rent free use of a trust asset.
See TSEM4000 onwards for guidance on the settlements legislation.
A FURBS may have been given the exemption from the date of its establishment. But if at any later stage the FURBS provides non-relevant benefits, then it was not established for the sole purpose of providing relevant benefits. Consequently it loses the exemption for all years it had previously been given.
Example: FURBS established 6 April 2000 (now an EFRBS). In July 2007 it provided non-relevant benefits on winding up (based on the S393B ITEPA 2003 definition of a relevant benefit as at 2007). Because it provides non-relevant benefits, it was not established solely to provide relevant benefits; therefore it loses the exemption from the rate applicable to trusts/dividend trust rate back to the date of establishment 6 April 2000. This will only be relevant within the appropriate periods of limitation for compliance/corrective action.
National Insurance Contributions
For guidance on contributions and payments out of a FURBS up to 5 April 2006 see NIM02156.
Periods from 6 April 2006-EFRBS trusts
A FURBS is automatically treated as an EFRBS from 6 April 2006 assuming it is established to provide relevant benefits.
From 6 April 2006, the exemption from tax at the special trust rates is abolished and EFRBS trusts are taxable at the special rates for trusts.