30yo... Looking for best way forward!

Appreciate all of the advice provided thus far, it's very helpful to read through and see what options are available - even though there are some conflicting views...

Currently, my thinking is leaning towards extracting a large portion of these profits as salary - divided between my partner and myself, so as to avoid the higher rate of USC...

Tossing up whether to kick some of the profits into an Executive Pension, however it's difficult to get any detailed information on what funds are available online. Any help pointing me in the right direction here would be great!

Here are two scenarios that I've been playing with...

Option 1 - Salary Bonus + Pension Contribution

Gross Profits = €130,000

Additional Gross Salary Bonus = €100,000 (€50,000 each)
Additional Net Salary Bonus = €49,812.20 (€24,906.10 each)

Pension Contribution = €30,000 (€15,000 each between my partner any myself)


Option 2 - 100% as Salary Bonus

Gross Profits = €130,000

Additional Gross Salary Bonus = €130,000 (€65,000 each)
Additional Net Salary Bonus = €64,212.20 (€32,106.10 each)

Pension Contribution = ZERO


So, I'm thinking now... What is more valuable to me now and in the longer term? €15,000 extra as cash now OR €30,000 in a pension fund for 30 years... Hmmm....!

According to an online Mortgage Repayment Calculator, paying a €15,000 lump sum off my mortgage now would save me €29,627 in Interest Payments and I'd be mortgage free 3yrs 8mo earlier...

Would it be worthwhile meeting a specialist tax planner? They charge €200 - 400 per hour, so I'd want to be sure that it'll be worthwhile before committing as surely it would take multiple hours and could quickly add up...

Lots of food for thought anyhow!
 
ThirstyLizard said:
So, I'm thinking now... What is more valuable to me now and in the longer term? €15,000 extra as cash now OR €30,000 in a pension fund for 30 years... Hmmm....!

According to an online Mortgage Repayment Calculator, paying a €15,000 lump sum off my mortgage now would save me €29,627 in Interest Payments and I'd be mortgage free 3yrs 8mo earlier...
Click to expand...

so in essence you are proposing paying the 15k cash off the mortgage, which will save you around 30k in the medium term
30k paid into a pension fund now, compounded over 30 years assuming a 4% growth per year after all charges would be around 100k

Obviously a matter of personal choice, but it is all about getting the right balance that works for you personally !


BTW, what do you plan to do with the other 50k you are taking out ? as this may influence some of the decisions !
 
Just a quick update...

Met with a Tax Consultant this week and one strategy that was put forth was to accumulate the profits in the company, with the view to liquidating/selling the company in the future.

Calculations as follows;

Profits = €130,000
Corporation Tax @ 12.5% = €16,250
Net Profit = €113,750 (left in the company)
CGT (Entrepreneurs Relief @ 20%) = €22,750.00

Net Proceeds upon liquidation/sale = €91,000 (an effective tax rate of 30%)

The net profits should (hopefully) continue to increase year to year, until the liquidation/sale event.

On the face of it, this would seem like a viable option.

I'm still trying to run different scenarios myself, and pulling out Pros / Cons for each, so to help me in my thinking, it would be great if any of you could give your thoughts and comments on the above strategy.

Thanks again!!
 
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I suggest that you need to identify the principles behind the choices you will make first, certainly before you approach any financial advisor.

The first principle I recommend is that you take any capital surplus to business requirements out of the limited company.

Money in the limited company is exposed to the usual risks of any business, it belongs to the company not to you, you should be realising some of your profits each year.

Excess money in any business leads to poor decisions in my experience, for example if you have €130,000 excess cash in the bank account you will not chase your debtors like you would if you were strapped to meet next weeks payroll.

You need to do this in the most tax efficient way possible. I am surprised at the advice you received outlined above in post 23. When you approached that tax advisor did you say that you were thinking of selling the business in a few years, or was that the advisors idea. You never mentioned a sale in your previous posts on here. Either you want to sell the business within a time frame or you do not. Selling a business just for tax reasons is not to be taken seriously.

The second principle is about risk again. It appears that you and your spouse own everything 50/50. The ownership structure should be the result of a considered decision, not just the way things happened. From my personal experience. When we started out in life we agreed to share everything 50/50, no great thought went into that it just felt right. Roll on a few years to 2008, business was bad and it looked like we might loose everything. It would have been much more comfortable if my wife had owned the house with no mortgage and I had owned the business and its debts. We could have arranged things that way in 2005 or 2006 but it hadn't seemed important. There are a lot of other potential issues involved there but ownership structure could become crucial in a difficulty.

To my mind a pension ticks both these boxes. It is a tax efficient way to get money out of the company. A pension pot is (mostly) free from business risk.

I take BBs point that at 30 you don't need to think pension, but again going back to my own experience, I made sizeable pension contributions at a young age, and I am glad I did, i couldn't afford them now. Business has picked up fortunately but college fees soak up every penny.
 
ThirstyLizard said:
Tossing up whether to kick some of the profits into an Executive Pension, however it's difficult to get any detailed information on what funds are available online. Any help pointing me in the right direction here would be great!
Click to expand...

I was actually facing similar decisions to you not long ago and for me at least an Executive Pension seemed like the way to go. I'm taking a salary of €42k with a personal pension contribution of ~€8k and company contribution of ~€18k all with tax relief, so my current salary is taxed at the lower rate. I have a relatively small outstanding tracker mortgage which is very cheap money so I'm not interested in paying this off early. Working anywhere near full-time would still result in significant profits building up in the company but for me at least it's not worth my while taking a salary at the higher rate given direct tax of 50% and a further 10% or so going to indirect taxes. Therefore I'm looking at either changing my tax residence (working remotely is an option for me) or reducing the amount of time I spend working.

I could give you some details on the Executive Pension funds I looked at if you're interested.
 
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