# money left in limited company, should I put in pension



## sillbill (17 Feb 2014)

Hello,

Looking for some advice, or pointers to where I can get such advice

I'm IT contractor, with limited company and after expenses and paying myself, I have about 50K left in my company after this year. As I see it I have three real options?

1) I could pay myself this money, but don't' really want to pa 52% tax on it
2) leave it in the company, and be subjected to corporation tax. i could pay myself in years to come? Or leave it till retirement age, if I do that can I take it out tax free?
3) Pay it into a pension. I don't currently have a pension, I know i probably should but don't like it locked away for years.

Any advice?


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## Gerry Canning (17 Feb 2014)

1.If you pay Corporation Tax , you are still left with a Tax paid fund you can call on should the need arise. Lovely position to be in.You will always be taxed at your marginal rate when you withdraw it.
2. Pensions are much maligned , but still a very good idea, time catches us all !

Get advice from yourself , on do you see profit in medium term?If there is uncertainty be slow to lock away funds.
Get advice from accountant on his pension views.
Get advice from known/trusted pension advisor.

A lot depends on your age, committments, etc.


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## Brendan Burgess (17 Feb 2014)

You should not pay Corporation Tax on it. You are effectively going to be double taxed on it. 

Depending on your year end, it's probably too late to put it in a pension. 

So pay it to yourself as salary. 

There are loads of threads on this on askaboutmoney.

But also get your accountant's advice.


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## Nige (17 Feb 2014)

Brendan Burgess said:


> You should not pay Corporation Tax on it. You are effectively going to be double taxed on it.
> 
> Depending on your year end, it's probably too late to put it in a pension.
> 
> ...



Do NOT pay it to yourself as salary if you don't need the money.

If you leave it in the company, subject to corporation tax at 12.5%, you may be able to get the remaining 87.5% out either tax free (using retirement relief, after you turn 55) or subject to CGT (currently 33%, which still gives you a better rate than current income tax rates) on a future sale or liquidation if you don't qualify for retirement relief.


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## mandelbrot (17 Feb 2014)

Nige said:


> Do NOT pay it to yourself as salary if you don't need the money.
> 
> If you leave it in the company, subject to corporation tax at 12.5%, you may be able to get the remaining 87.5% out either tax free (using retirement relief, after you turn 55) or subject to CGT (currently 33%, which still gives you a better rate than current income tax rates) on a future sale or liquidation if you don't qualify for retirement relief.



How would the OP qualify for retirement relief?


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## Joe_90 (17 Feb 2014)

OP any issue with the professional services surcharge for close companies?


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## Nige (17 Feb 2014)

mandelbrot said:


> How would the OP qualify for retirement relief?



If he gets up to €750k out of the company by selling the shares or liquidating the company and meets the following condition:

- company is a trading company for the past ten years
- he has been a director for at least ten years ending with the disposal
- he has been a full time director in the Co for five years
- he is aged over 55
- the shares have been held for at least 10 years.


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## mandelbrot (17 Feb 2014)

Nige said:


> If he gets up to €750k out of the company by selling the shares or liquidating the company and meets the following condition:
> 
> - company is a trading company for the past ten years
> - he has been a director for at least ten years ending with the disposal
> ...



But the accumulated cash on deposit, or held in investments, or whatever the company does with it, will not be part of the chargeable business assets of the company..?

There's an explanation and example at Para 3.5 of the Revenue Operational Manual here:
[broken link removed]

In the case of an IT contractor it's unlikely they'd qualify for much/any CGT retirement relief - no-one can buy the trade and its goodwill from them, since it is personal to them, and they are unlikely to have any meaningful trading assets that would be chargeable assets. 

Ditto on a liquidation, see para 3.13.


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## Brendan Burgess (17 Feb 2014)

I am not sure that we need to discuss it all over again. It's discussed at length in other threads.


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## sillbill (17 Feb 2014)

My year end is two weeks awag. Hence the question. 

I am only 33 so not entitled to retire yet. 

But thats exactly what im wondering if I left it in company would I be able to take it out tax free at retirement age. Effectively only paying corporation tax
Instead of 52% tax now

I dont need the money now. 

I have searched for other threads on this question. Can someone please send me links to them.


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## sillbill (17 Feb 2014)

Joe yes I am liable for surcharge too.


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## Nige (18 Feb 2014)

mandelbrot said:


> But the accumulated cash on deposit, or held in investments, or whatever the company does with it, will not be part of the chargeable business assets of the company..?
> 
> There's an explanation and example at Para 3.5 of the Revenue Operational Manual here:
> [broken link removed]
> ...



If you work through that example you see that the cash (together with the stock) falls out of the calculation and so, provided a person does not have investments in their company, they will fully qualify for retirement relief.


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## Brendan Burgess (18 Feb 2014)

Tax planning: take salary or leave profits in company?


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## mandelbrot (18 Feb 2014)

Nige said:


> If you work through that example you see that the cash (together with the stock) falls out of the calculation and so, provided a person does not have investments in their company, they will fully qualify for retirement relief.



That is in circumstances where the cash is a trade asset ie working capital - if the OP accumulates 50k cash for 20 years and has a pot of a million on deposit, that is not going to fly.


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## Nige (18 Feb 2014)

mandelbrot said:


> That is in circumstances where the cash is a trade asset ie working capital - if the OP accumulates 50k cash for 20 years and has a pot of a million on deposit, that is not going to fly.



Well, one million would be over the threshold.

But, in any case, the formula set out in the legislation refers to "chargeable assets". Euro currency is not a chargeable asset and so it falls out of the equation.


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## mandelbrot (18 Feb 2014)

Nige said:


> Well, one million would be over the threshold.
> 
> But, in any case, the formula set out in the legislation refers to "chargeable assets". Euro currency is not a chargeable asset and so it falls out of the equation.


 
Well, we can only speculate about what the landscape for retirement relief (if it still exists) will be in 20+ years time!! So the threshold might be a million, or it might be 20million, or 200k...

I understand that the items fall out of the equation - but the individual still has to have chargeable assets and chargeable business assets for the formula to result in anything other than nil. In the specific case of an IT contractor, what chargeable business assets will they actually have?

Also, if they have accrued a substantial pot of money, Revenue may form the view that the company has become an investment company rather than primarily a trading company by that point.

I suppose what I'm trying to get at is that there are all sorts of risks with adopting the "leave it all accumulate in the company" approach. To me, the best approach would be some combination of pension / salary / on deposit in the company, to achieve a better balance of certainty, access and flexibility.


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## Steven Barrett (19 Feb 2014)

sillbill said:


> My year end is two weeks awag. Hence the question.
> 
> I am only 33 so not entitled to retire yet.
> 
> ...



Sillbill

Before you make a decision, think about your short term needs first. Is there anything that you need or plan to have in the near future or will there be demands on your cash? If so, pay the tax and take the cash.

What is your emergency fund like? Do you have a few quid on deposit, just in case? If not, that is your starting point. You'll need some cash on deposit. 

When those two criteria are looked after, pension funding may be a good idea to consider. 


Steven
www.bluewaterfp.ie


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