October 26th, 2012 / Insight posted in

Cut tax for retirement

IC writes: My business was recently sold to a German company and I have a five-year service contract that offers big bonuses. I also have separate start-up businesses, which I expect to expand. Should I put my bonuses into a funded unapproved retirement benefit scheme (Furbs)?

Furbs are not approved by the Inland Revenue so no rules apply to the contribution levels or type of investments. Because Furbs are unapproved, contributions made by your company into such a scheme would be treated as a taxable benefit for the beneficiary and would be subject to national insurance. The funds in the scheme are not tax-free. Basic-rate income tax is payable on income, and capital gains tax at 34% is payable on gains. So on the surface Furbs seem unattractive. But Furbs may be appropriate for tax planning because the money may be taken out tax-free on retirement. Also, Furbs can invest in unapproved assets such as furnished holiday accommodation. The fund could own your start-up businesses. It must pay market value for the shares. But subsequently dividends received by the Furbs would suffer no extra tax charge, as the tax credits would satisfy the basic-rate tax charge. Retirement can take place at any age. Funds in Furbs will normally be outside your estate for inheritance tax purposes. You should discuss the issues with a professional adviser.