EFRBS - you should know about these if you own a limited company

If you own your own company and want to find a legal and very tax efficient method of drawing funds out of your company, you will want to know about EFRBS - "Employer Financed Retirement Benefit Schemes".

Yesterday I attended an excellent seminar about EFRBS, so good that it is worth blogging about. But first may I say that I am not a financial specialist so this is my take on what I found out. If you are interested and want to know more contact me and I will put you in touch with a competent specialist.

Most business owners take money from their company through paying themselves a salary using the PAYE method of taxation, or through paying themselves dividends which is slightly more tax efficient, or by paying money into a pension plan which is not taxed when you pay the money in but means the money is not accessible.

Or you might be tempted to give yourself a loan from your business, but of course you must pay this back within nine months or you will be liable for income tax on the loan.

If you are in the higher income bracket and therefore pay higher taxes, an EFRBS is likely to be a good option - basically you pay money into the EFRBS and then the EFRBS (which you as the company director will control) can loan the money to you. As it is a loan it is not classed as a 'benefit' so there is no tax on it, no PAYE, no National Insurance and no limit on the size of the loan. EFERBS are especially good for tax efficiently drawing funds that have built up as company reserves.

The money you pay into the EFRBS is not tax deductable - you pay it into the EFRBS from your post tax profits or built up reserves.

The only proviso is that the loan is given to you on commercial terms, which means that you will need to pay interest back into the EFRBS on the value of the loan and the annual interest you pay on the loan is subject to tax.

You can keep the loan as long as you need to including up to when you are deceased - in the later case it will be paid back into the EFRBS out of your estate. The loan is paid back into the EFRB before inheritance tax is assessed against your estate, so it will reduce the size of your estate that is subject to inheritance tax.

In summary the EFRB is a trust that you as a company director/owner control set up to build up a retirement benefit scheme. The money you pay into the trust is post corporation tax. You are entitled to use the fund to loan money including to yourself so long as the loan is made on commercial terms.

Contact me if you want to be put in touch with an expert who can assess whether this would be beneficial to you.