Moving Profits today to Savings for Tomorrow
As a Business Owner you have to manage the day to day running of your business, whilst also putting plans in place for its short term and long term future success.. While you may be used to putting in long hours, a lot of business owners find it difficult to find the time to step away from immediate priorities, to focus on the long term future of their business, not to mention their own future outside the business.
When it comes to looking further into the future, business owners often view their business as their primary nest egg. Many believe that they will never retire from their business or will sell it and use the lump sump to fund their retirement years. However what some business owners don’t realise, is that they have a unique opportunity to transfer profits out of their business today into a savings pot for their own tomorrow. Doing so can make real sense, in that income in the future isn’t entirely dependent on the future success of their business. What’s more, they can actually offset payments into this savings pot against the company’s Corporation Tax Bill.
A Tax efficient way of transferring profits or surplus funds out of your business, is to set up an Executive Pension Plan. Under such an arrangement, your company can make contributions into your Executive Pension, essentially moving cash out of the business into what is effectively a pot of money held under trust for you. These company contributions can normally be offset against Corporation Tax, reducing your company’s tax bill and don’t attract any tax liability in your hands at the time of payment, as they are not tretated as Benefit in Kind.
The following are some of the key benefits of an Executive Pension Plan
- Contributions can be varied to suit both the finances of the company and your own personal finances
- The Company can normally make much higher contributions to a pension than an individual in their own right
- Company contributions can normally be fully offset against Corporation Tax
- No Benefit in Kind applies to Company Contributions to an Executive Pension
- Any growth on your contributions within the Executive Pension is tax free (under current legislation)
- When you retire, part of the accumulated fund within your Executive Pension can be taken as a tax free retirement lump sum
- You have the possibility of early retirement form age 50, if you surrendered your shareholding and severed all links with that business
As a business owner you work hard today to provide yourself with a better tomorrow.
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