Extracting Company Profits
Good forward planning means SME owners should look at all their options for extracting profits from their business in a tax efficient manner. Better known as Wealth Extraction, this is the efficient means of withdrawing profits for the benefit of the business owner in the most tax efficient means possible. If this is done and planned well, it can lead to financial freedom later in life.
Many company owners have their business year end in line with the Calendar year end. As a result this is a very busy time of year for us at Peavoy Financial Planning. During the recession many SME owners struggled to keep their businesses afloat as customers sharply cut back on spending habits. Today we are in a different place. Many of these same businesses have shown remarkable resilience and have seen their business flourish in recent years with the result that many have accumulated cash assets in the company.
Extraction of company profits via an employer contribution to an Executive pension is very popular with business owners. Profits withdrawn via an Employer contribution to an Executive Pension Plan result in tax relief for the Employer (subject to Revenue limits) and no immediate tax liability for the employee.
The Key Advantages of Withdrawing Profits via an Executive Pension Plan are
- Corporation Tax Relief for the Employer @ 12.5% (Subject to Contribution Limits)
- Generous Limits for Employer’s to contribute.
- No Income Tax, PRSI or USC liability for the employee following the contribution.
- No PRSI Liability for the Employer as a result of remunerating the employee in this way.
- Profits invested in pension fund which allows tax free growth until retirement.
- Opportunity to plan for business exit strategy with access to funds available as early as age 50 if all links with the business are severed, or anytime between age 60 – 70 without having to sever any links with the business.
- Pension lump sum at retirement which is tax free up to the first €200,000 and subject to favourable rate of 20% for the next €300,000.
- Income in retirement via Pension Annuity or Approved Retirement Fund/Approved Minimum Retirement Fund
- Possibility to pass wealth to spouse and children via Approved Retirement Fund/Approved Minimum Retirement Fund
It is important to note, if your company year-end is the 31st December 2019, the company pension contribution must be made before this date and have left the company bank account. Should you wish to make a Company Pension Contribution before Year End or would like to request further information on what contribution may be suitable for you please contact me, David Peavoy on 087-2902206 or alternatively by email on *protected email*
David Peavoy BA, QFA, LIAP is the Owner of Peavoy Financial Planning whose practice is based in Office 5b, Portlaoise Enterprise Centre, Clonminam Business Park, Portlaoise, Co Laois.
David Peavoy T/A Peavoy Financial Planning is regulated by the Central Bank of Ireland
Disclaimer: All data and information provided within this blog is for information purposes only. It should not be taken as specific advice for your situation. Peavoy Financial Planning makes no representations as to the accuracy. completeness, or suitability of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries or damages arising from its use