Hot Topic #6

Turning Company Profits into Personal Wealth

Pension Opportunities for Company Directors

Many business people are still not aware of the financial benefits arising from pension legislation.

The legislation offers owner directors with more than 5% of the voting rights, an opportunity to convert company profits into personal wealth, in a tax efficient way.  If you have made little or no provision for your retirement, then using company profits as contributions to your pension could be an excellent means of ensuring that you can maintain your lifestyle in retirement.

As a director with more than 5% of the voting rights, your company can make significant contributions to your company pension plan.  These contributions are not subject to income tax, PRSI or BIK.  Your company saves on corporation tax, and your pension fund will grow tax free.

On retirement you can take:

• A tax free lump sum

• An income paid for life

• Cash sums

• Or a continuation of investments through ARF’s (Approved Retirement Funds).

Questions & Answers

Why shouldn’t I take the profits as income?

• You could do this but it is far less efficient from a taxation point of view.  You would be liable to pay the marginal rate of 41% plus income and health levies, on everything you withdraw as income. 

• Why shouldn’t I leave the profits in the business?

Again this is an option, but company profits are subject to corporation tax at 12.5% and after the tax is paid, you will still not have access to the funds.