Here is a simple idea to help you to extract money from your business, using pension legislation. If you can prove it makes no sense I will donate €10 to Dublin’s Simon Community!
I am presuming you are 45, male/female (doesn’t matter either way) and own a small limited company which you set up 5 years ago. You draw a salary of €70,000, so things are fairly good. And you have no existing pension arrangement, because you don’t believe in them!
Here’s the plan
1. The idea is to fund for a tax free lump sum with NO RESIDUAL PENSION. So don’t worry about receiving small annual payments (annuity).
2. When you are 60 you can take 1.5 times your final salary as a lump sum, tax free. (Under current legislation!)
3. So, assuming no growth in salary, you can take €105,000 (€70,000 x 1.5) tax free at age 60, nice birthday gift to self.
4. To fund for this your company needs to put €7,000 a year into an approved pension fund. (7,000 x 15 years = 105,000) assuming NO GROWTH in the fund. As you are not concerned with growth there is no need to invest in risky funds!
5. Your company can claim corporation tax relief on this payment each year. A total saving of €13,125 if you pay 12.5% Corporation Tax
6. When you reach 60 mature the pension (no need to retire) and take €105,000 tax free. (If you had drawn this amount in salary each year you would pay tax, USC etc and be left with say €3,500?)
- You net €105,00 as opposed to €57,000 approx if taken as salary
- Your company saves €13,000 in tax.
- End of Pension Fund, you have cleared it out!
- Now, that has to make sense?
- Talk to a Qualified Financial Adviser today.
Donal O’Sullivan QFA