How Can Pension Planning Help Me Transfer Company Wealth To Private Ownership?
If you are a business owner running a successful company, you will no doubt at some point turn your attention to the important issue of how to turn company cash into private ownership in a tax efficient manner.
You will also already be aware that one of the most frustrating elements of running a successful business is the fact that as you make money your profits are subject to corporation tax of 12.5%, and also if you take money out of your business in the form of salary you will expose yourself to income tax, PRSI and USC of up to 55%.
The two most common questions we get asked by business owners are:
- How can I reduce my corporation tax bill, and
- How can I extract cash from my business in a tax efficient manner?
A tax efficient pension planning strategy will address both questions:
- Corporation Tax – Whilst a 12.5% corporation tax rate is not in a global context the most penal rate out there, it is still a tax on your profits and hard work. Pension Planning provides a solution. Your business can make direct payments to a Company Pension for your benefit. The payment made by the company is an allowable expense, so it reduces your profits and thus reduces your corporation tax liability. Furthermore, the payment made by the company to a pension for your benefit is not liable to income tax, PRSI or USC as your pension is deemed to have received the payment and not you personally.
- Wealth Transfer / Cash Extraction – the transfer of company cash to a pension for your benefit as outlined above is in effect the transfer of company wealth / cash to private ownership. It also has the added advantage that monies held in a company pension, under trust for your benefit, are ring fenced from creditors in the event of your or your business getting into financial difficulty. When you access your pension later in life you can extract up to €200,000 tax free and also another €300,000 at a 20% tax rate depending on your individual circumstances.
Effective Pension Planning is a key component of reducing your corporation tax bill, and also a great method of transferring company wealth to private ownership for your long-term prosperity.
If you have questions, please feel free to contact me using the contact details listed below.
Michael Coburn BBS, QFA, FLIA, LCOI, RPA, SIA
COMPLIANCE & FINANCIAL MANAGER
Michael has been providing tax, investment and lifetime financial planning advice to clients since 2005. He has an in-depth understanding of Business Owners and their requirements, which allows him to guide his clients through the complex world of long-term financial planning.