# What to do with Cash reserves in Company?



## Monte2014 (28 Nov 2020)

Age: 44
Spouse’s/Partner's age: 45

Annual gross income from employment or profession: €30,000. I am an employee of my own company. My wife and I are also Directors of the company. My wife does not take a salary from the company. Annual Turnover of the company is circa €120,000.
Annual gross income of spouse: €50,000 private sector.

Monthly take-home pay: €2,245 + €2,605 + €420 child benefit. Total is €5,270. I also claim a travel and subsistence, which works out at circa €2k/month as I travel quite alot.

Type of employment: e.g. Civil Servant, self-employed: Both in private sector.

In general are you:
(a) spending more than you earn, or
(b) saving? We save circa €1k a month from our PAYE salaries and there is circa €5k a month left in company account after all taxes are paid.

Rough estimate of value of home: €400,000
Amount outstanding on your mortgage: €150,000
*What interest rate are you paying? 2.75% variable. *

Other borrowings – car loans/personal loans etc: None.

Do you pay off your full credit card balance each month? Yes.
If not, what is the balance on your credit card?

Savings and investments: €123k in shares, €35k in cash, €70k in cash reserves in company.

Do you have a pension scheme? Yes, €240,000 in various Buy Out bonds. My wife has company pension where she is contributing 5% and company contribute 5%.

Do you own any investment or other property? No, but I own agricultural land valued at €130,000.

Ages of children: 13, 11, 9

Life insurance: Yes.


*What specific question do you have or what issues are of concern to you?*
I have €240,000 in various pension buy out bonds and I want to consolidate them. I also set up an executive pension through a financial advisor last year with Aviva. So far I have contributed €10k. The maximum funding position I have through the company this year is €19,000 based on salary of €30,000. A regular contribution type of funding could commence next year this would be approximately €2,000 per month beginning in 2021.

I have asked two financial advisors for advice on the best way to make my current pension and future pension contributions to work for me returning a yield of circa 4-6%. Also, I want to make the built up reserves work for me in the most tax efficient manner. I have read about passive investing and low cost index funds but my understanding is ETF's can be complicated in Ireland. Based on this, both advisors came back to me with the following:

Financial Advisor 1:
"Existing private pension benefits would be transferred to the Consensus Fund with Irish Life. This is a slightly less volatile fund than the Zurich funds but I feel it will stand you in good stead given your target growth rate of 4-5% per annum. This will allow for the management of these benefits and as discussed we could aim for a staggered drawdown of pension benefits in order to maximize the tax efficiency around your pension income.

Your existing Executive Pension with Aviva would be transferred to the Zurich Life Balanced Fund"

Total fees on the above are 1.35% for Zurich and 1.10% for Irish Life.

Financial Advisor 2:
"80/20 is the agreed long term equity allocation.

Irish Life - Indexed 80/20 portfolio. - Executive Pension
Davyselect - Vanguard Indexed portfolio 80/20 and Foundation portfolio 80/20

All existing pension monies to be migrated over to the Davyselect portfolio. 

No upfront commissions just ongoing charges of circa 1.18 (Vanguard) 1.48% The higher charge reflects greater diversification and oversight.

This includes an ongoing .50% deduction to Financial Advisor to cover the work and advice each year."

I am happy to pay a financial advisor for advice but it seems that the majority of financial advisors in Ireland offer clients funds from Zurich, Irish life, Aviva etc. Any thoughts on the above advice and which one I should go with or should I go in a different direction?


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## zephyro (29 Nov 2020)

Also self-employed company owner with executive pension (Zurich @ 0.75%) here, the first glaring question is what was the thinking and plan behind taking salary of only €30k on turnover of €120k??


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## Monte2014 (29 Nov 2020)

As I am a company director, my accountant advised that it is more tax efficient to take a minimum salary, take dividends, and contribute to a pension.


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## Brendan Burgess (29 Nov 2020)

The most important thing for you to look at is the cash strategy. 

Has your accountant set out the strategy in writing? 

It seems wrong.  Unless there is a plan to liquidate the company or avail of retirement relief.   I am not a fan of that either as it could backfire badly if tax rules change. 

It is usually better to distribute the profits as salary and pension and leave no cash in the company. 

When is your year-end?  If it is December , you should address this immediately.  Pay yourself a big salary and pension deduction this year and create a loss equal to last year's profits.  You can set this year's loss back against last year's profits, but you can go back only one year. 

So if December is your year-end, you should probably do it now rather than wait for the New Year. 

Then you will have less cash to worry about.

You should go to a financial advisor who will charge you a fee. The guys you went to look as if they are getting commission and selling you high price products. 

Brendan


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## NoRegretsCoyote (29 Nov 2020)

Monte2014 said:


> *What interest rate are you paying? 2.75% variable. *



Also, you can probably get better value than that by fixing and/or switching mortgage provider.


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## Monte2014 (29 Nov 2020)

zephyro said:


> Also self-employed company owner with executive pension (Zurich @ 0.75%) here, the first glaring question is what was the thinking and plan behind taking salary of only €30k on


Zephyro, can I ask how you managed to get Zurich @ 0.75%?


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## Monte2014 (29 Nov 2020)

Brendan Burgess said:


> The most important thing for you to look at is the cash strategy.
> 
> Has your accountant set out the strategy in writing?
> 
> ...


Brendan, I think my accountants strategy was to avail of entrepreneur relief. My year end is December so worse case scenario I could pay myself a high salary and make the max allowable pension deduction into my existing Aviva  executive pension before 31 December, and review my finances with a fee based financial advisor in the New Year.


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## zephyro (29 Nov 2020)

Monte2014 said:


> Zephyro, can I ask how you managed to get Zurich @ 0.75%?


You sure can, it was a broker who got this AMC for me.

As Brendan said, you need to accept the risk that tax rules will change if the plan is to avail of entrepreneur or retirement relief in the future. Also you probably know this already but Revenue have detailed rules on allowable travel expenses specified here. If you haven't already, you need to look through them and particularly the examples for company directors from page 23, to ensure you're not exposing yourself to a nasty future liability. Finally your concern about ETFs is irrelevant as regards pension funds.


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## Monte2014 (29 Nov 2020)

I am an employee of the company so any allowable travel expenses are claimed. The office is based in Munster and I need to be in Dublin 3 or 4 days each week.


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## Brendan Burgess (29 Nov 2020)

Monte2014 said:


> I think my accountants strategy was to avail of entrepreneur relief.



OK. Make sure that you are clear about it.  That it is carefully written down. 

And it should really be something which you will be availing of in the medium term.  Otherwise, it might not be still there, and your plan will have been very bad.

Brendan


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## zephyro (29 Nov 2020)

Monte2014 said:


> I am an employee of the company so any allowable travel expenses are claimed. The office is based in Munster and I need to be in Dublin 3 or 4 days each week.


Does this mean you're required to travel between your own company office in Munster and client office in Dublin, and if so is your company office separate to your home? Otherwise you might clarify the locations you're travelling between.


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## Monte2014 (30 Nov 2020)

Yes, my office and home are separate addresses. I work as a Chartered Surveyor so my work takes me to various clients across various sites in Dublin.


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## Monte2014 (2 Dec 2020)

Brendan Burgess said:


> The most important thing for you to look at is the cash strategy.
> 
> Has your accountant set out the strategy in writing?
> 
> ...


Just an update on this. I spoke with my accountant and he said the only reason that cash is left in the company is there is high tax costs to extraction – 41% Income Tax plus PRSI & USC. If the extraction cost can be sheltered then there is no issue with taking the cash. e.g If I take out 60k as salary in one go then I will net 30k approx. due to tax. If the company can use some funds to contribute to my pension then the company gets a tax deduction and 100% is allocated to my pension. If I fund a private pension I get a maximum of 40% tax relief so a 10k contribution reduces tax bill by up to 4k. I can leave cash in company and trade for 10 years plus and extract €750k plus tax free once over 55. This doubles to 1.5m if my wife is also a full time working director for 5 of the 10 years pre liquidation.


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## Zenith63 (3 Dec 2020)

Monte2014 said:


> Zephyro, can I ask how you managed to get Zurich @ 0.75%?


Just FYI I also have a Zurich Exec Pension @ 0.75% AMC, I simply called the Zurich phone number on their site (https://www.zurich.ie/pensions-retirement/choosing-your-pension/executive-pension-plan/) and dealt with somebody in the Zurich Blackrock office who set it up over a week or two.  I had quotes for the same pension from a number of brokers who were adding 0.5% to the AMC (for a total of 1.25%).  To be honest I've found Zurich guy who deals with my pension really helpful and have not had a need to seek additional advice elsewhere.

Worth looking into whether your company (may need to be Limited) can make employer contributions on your behalf, thus avoiding USC and PRSI also.  The yearly limits are many multiples of the usual employee contribution limits.


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## Brendan Burgess (3 Dec 2020)

Monte2014 said:


> I can leave cash in company and trade for 10 years plus and extract €750k plus tax free once over 55.



Hi Monte

While this is correct at present, it might well be gone by the time you hit 55. 

I don't think that this is a sensible strategy for a 44 year old.  If you were within three years of retirement, maybe. 

But who knows? It might work out.

Ask your accountant to set out the strategy in writing and the risks to it, so that you can keep it under review. 

Brendan


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## cd76_np (4 Feb 2021)

Brendan,  A pension guy(in a large Bank) told me that Cash reserves in a Limited Company cannot be used when claiming Retirement Relief.  He said the relief does not apply to Cash assets.  Is that true?.  My  accountant says the Cash is allowable and has told me this every year for the last 3 years. I will have about €200k in Cash in the companys current account.  There are no other assets other than a PC and phone.

I'll be retiring in 2 years and this is my strategy.  I have also maxed out my Exec pension so am in a good place. But I don't want to get a surprise in 2 years and end up paying 40% tax.  Right now I am looking forward to getting the 200k cash into my hands.  I know the law could change but assuming it stays as is can you confirm that Cash assets are eligible for full relief please ?


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## Brendan Burgess (5 Feb 2021)

cd76_np said:


> can you confirm that Cash assets are eligible for full relief please ?



No I can't. It's not clear to me.   You should get a tax advisor to confirm it in writing to you.
Brendan


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## Gordon Gekko (5 Feb 2021)

Brendan’s right, it depends


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## Marc (5 Feb 2021)

As I’ve been saying for over a decade the alternative to opaque pricing and lack of fund choices with the life insurance companies is to use and trustee company approved by Revenue to access the pension wrapper and then to insert a dealing and custody account.






						Self-Administered Pensions | Independent Trustee Company
					

Independent Trustee Company (ITC) is Ireland's leading professional pension trustee company, specialising in self-administered pensions.




					www.independent-trustee.com
				




The wholesale cost of this structure is 0.40% and gives access to around 10,000 funds plus a dealing account which can trade exchange traded Instruments.

Brokers favour insurance companies for one reason and one reason only - commission. It’s how they get paid


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