Self-employed, company director, buy family home as efficiently as possible

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newinvest

Registered User
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41
Age: Early 50s
Number and age of children: one

Income and expenditure
Annual gross income from employment or profession: 100K
Annual gross income of spouse: 80K

Type of employment: Self-Employed, both company directors of our own businesses

In general are you:
(b) saving.

Summary of Assets and Liabilities
Family home worth €550k with a €200k mortgage
Cash of €200k

Family home mortgage information
Lender: PTSB
Interest rate: around 3.65% Variable

Other borrowings – car loans/personal loans etc
None

Other savings and investments:
Do you have a pension scheme? No
Do you own any investment or other property? No

Other information which might be relevant
We both own our own profitable companies with seven figure turnover and strong profits

What specific question do you have or what issues are of concern to you?
We would like to move home in the next year and are looking at a house in region of €1.5 million. We both have succesful businesses, but we are paying ourselves average salaries as I guess we didn't need to take more money from the businesses up to this point. However, we would like to move in the next year or two, and my question is - do we need to payroll ourselves from the business e.g. over €1 million (and pay a huge sum of income tax) or is there a more efficient way to buy the home? We currently have no pension. Can we put this through a pension, have the company buy it, etc?
 
newinvest said:
we are paying ourselves average salaries as I guess we didn't need to take more money from the businesses up to this point.
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So you have built up a lot of cash in the company?

Have you a written tax plan for the company?

It usually does not make sense to leave cash in a company and it makes no sense to passively do it without a written plan so you know why you are doing it.

Sit down immediately with your accountant and tax advisor and work out what the strategy is.

For example, if you left profits in the company last year and paid Corporation Tax, you can create a loss this year and set it against last year's profits to recover the Corporation Tax.

Brendan
 
newinvest said:
Can we put this through a pension, have the company buy it, etc?
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No, you can't buy a house through your pension and live in it. You can buy a property but only as a pure investment let to someone at arm's length.

It would make no sense for the company to buy it. Any increase in the value of your family home is exempt from CGT. If it's held by the company the increase in value would be subject to CGT. And you would pay more CGT again when you eventually distribute the gain out of the company to yourselves.

Brendan
 
Brendan Burgess said:
This is terrible. You are paying over €7,000 a year to borrow money from ptsb to put it on deposit at 0%?

Clear your mortgage immediately.

Brendan
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Thanks for the feedback. I had the money in cash as i was undergoing a significant operation and potentially would be unable to work for a long time. This is no longer the case.
 
Brendan Burgess said:
This gets worse and worse.

So you have been building up profits in a company and putting nothing in a pension?

You really need to talk to a good fee-based financial advisor ASAP.

Brendan
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Sorry to be the bearer, but the executive pension plan route has been shut down so the opportunity to funnel large contributions to a one person pension is no longer available. If you have at least 3 people you can set up a scheme for, there is an opportunity to set up a scheme under a master trust. Otherwise, you are limited to the personal pension limits of pension contributions. This won't be sufficient for someone in their 50's with no pension.

A solution will have to be found to this as it is creating an inequitable situation where those in defined benefit and larger occupational pension schemes have a greater ability to fund their retirement than those who work in smaller companies.

On moving house, why do you want to move to a house that is triple the value of your current home when you are in your 50's? I imagine it is considerably bigger. You have one child, so it can't be for the space. You will be taking on a lot more debt that will have to be paid off in a relatively short amount of time. In that same relatively short period of time, you will also have to create an income in retirement.

Will selling your businesses be an option as well for retirement income? If so, just remember don't be reliant on it. If the economy changes at the time you want to sell, you may struggle to find a buyer or have to settle for a much lower price.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Steven Barrett said:
Otherwise, you are limited to the personal pension limits of pension contributions. This won't be sufficient for someone in their 50's with no pension.
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In your early 50s, you can contribute 30% of your salary. As you are taking out €180k at the moment, this amounts to €54k for last year and €54k for this year.
newinvest said:
we are paying ourselves average salaries as I guess we didn't need to take more money from the businesses up to this point.
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You can pay up to 30% of €115k each if you increase your salary, so that would be €70k.
10 years of this would be €700k + whatever return you get on the fund.

It's not sufficient on its own, but you will have considerable other wealth.

Brendan
 
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