Optimizing Tax-Efficient Investments as self-employed: Company vs. Personal Investments

[Moogle14]

Hi everyone,
I’m a 29-year-old IT contractor based in Ireland, working through my own limited company as the sole director + secretary.
My situation is as follows:
• Income: I earn around €600/day, working approximately 20 days a month.
• Pension Contributions: I have an Executive Pension (50% - Merrion Multi Asset 70, 50% - Cash Fund) with a 1.5% annual management charge (AMC), contributing €3,000 monthly from my limited company before payroll.
• Personal Investments: After taxes and expenses, I retain about 50% of my net income each month, which I invest in a personal brokerage account. I currently purchase the Vanguard FTSE All-World ETF through Degiro, but I’m aware of the 8-year deemed disposal tax rule in Ireland, where 41% tax applies to unrealized ETF gains.

To maximize compounding and minimize/defer/delay tax liabilities, I’d like to explore whether focusing more on company-held investments might be beneficial.

1. Company Investments:
• How can I optimize investing through my limited company to defer personal taxes and enhance compounding benefits? If the company holds investments (e.g., in ETFs or mutual funds), would gains be taxed only upon realization, or is there an annual tax liability even if gains are unrealized?
• Are there specific strategies to avoid the 20% surcharge on retained passive income if I reinvest rather than distribute dividends?
2. Personal vs. Company Investment Mix:
• Does it make sense to reduce personal ETF contributions due to the 8-year deemed disposal rule and instead prioritize corporate investments for longer-term compounding?
• Should I consider an approach where I continue some personal investing while also building a portfolio on the company side?
3. Pension Contributions:
• I’m contributing €3,000 monthly to my executive pension plan. Given the tax advantages and compounding benefits, does it make sense to increase this amount? Or should I direct more funds to the company investments for greater control over investment choices and timing? I am now fully aware about the bad position I'm in regarding the structure of my current Executive Pension, and I'm planning to re-structure it (Maybe a different post? Independent financial advisor rather than my current financial advisor?).

I have made some excel sheet with some comparison as well, and it looks like that - despite the complexity of this structure - it may be possible to get a delay/defer the tax liabilities to have bigger fund for the compounding.

Thanks in advance for any insights.

 

[ClubMan]

• Pension Contributions: I have an Executive Pension (50% - Merrion Multi Asset 70, 50% - Cash Fund) with a 1.5% annual management charge (AMC), contributing €3,000 monthly from my limited company before payroll.

50% cash for a 29 year old seems like a crazy asset selection. And 1.5% AMC seems very high. No point in trying to fine tune your pension options if you're going to select an arguably inappropriate asset mix and high charges.

 

[Moogle14]

50% cash for a 29 year old seems like a crazy asset selection. And 1.5% AMC seems very high. No point in trying to fine tune your pension options if you're going to select an arguably inappropriate asset mix and high charges.

Indeed it was a stupid selection at the time covid started and market crashed. The initial plan was to keep the money stationary as Director of an umbrella company, and move the fund at later point which is now

 

[ClubMan]

The initial plan was to keep the money stationary as Director of an umbrella company, and move the fund at later point which is now

I don't really understand what that means.
But, in general, pensions can arguably be simplified to choosing a low charges option, investing the money in a high/all equity content (or passive index tracker) fund, and contributing as much as you can afford once you have bought a home and without putting yourself under pressure in terms of day to day expenditure.
There may be additional issues/factors/choices for somebody who is self-employed.
Your accountant may be able to advice or recommend a pensions/tax advisor who can.

 

[Fortune]

Indeed it was a stupid selection at the time covid started and market crashed. The initial plan was to keep the money stationary as Director of an umbrella company, and move the fund at later point which is now

The time the market crashed was the time to move

 

[Brendan Burgess]

To maximize compounding and minimize/defer/delay tax liabilities, I’d like to explore whether focusing more on company-held investments might be beneficial.

1. Company Investments:
• How can I optimize investing through my limited company to defer personal taxes and enhance compounding benefits? If the company holds investments (e.g., in ETFs or mutual funds), would gains be taxed only upon realization, or is there an annual tax liability even if gains are unrealized?
• Are there specific strategies to avoid the 20% surcharge on retained passive income if I reinvest rather than distribute dividends?

This is the first issue you need to address.

You will be paying Corporation Tax on the profits and surcharges on the undistributed investment income.

Then when you take it out, you will pay Income Tax on it or CGT.

So you should be taking out the profits now as salary.

Do you own a home?

That should be your first investment priority and you can't buy a home if your money is stuck in your company.

If you own a home, you should be getting the mortgage down.

Brendan

 

[GSheehy]

If you're reviewing the pension just make sure there are no penalties on exit. You may have to wait out an exit charges period if they apply to the original contract. But, there's no reason why you shouldn't redirect the regular contributions to a more competitively priced contract even it you have to wait to transfer the accumulated fund.

Companies can hold investments in unit-linked funds. There's a sales flyer on it here from one of the providers.

 

[Moogle14]

Thanks everyone for your responses. Please find some feedback and clarifications. I do understand that my executive pension AMC is not competitive compared to other providers.
Suggestions are more than welcomed. I do know existence of ETF wrappers as well and evaluating this option on personal side. On the company side, I'm still looking for options.

I don't really understand what that means

I was a Director under an Umbrella company at the time pandemic and market crashed, and that is the time when I implemented my very first Executive Pension contribution towards the fund I mentioned above.
Since I couldn't park the company funds in the Umbrella's bank account to delay my personal tax liabilities (under 40% bracket), the only option I had at the time was to withdraw the entire funds each month through a payroll OR contribute to a pension fund.
Contributing to an executive pension, gave the opportunity to hold the gross income where at later point I would have planned to move to a proper investment/pension fund.
The plan was to time the market ONLY for my entry point (but there was still uncertainty due to all what happened during covid and volatility, that's reason behind the 50% cash fund).

The time the market crashed was the time to move

Indeed, but at the time there was still uncertainty for recovery I held on my decisions (due to the layoffs trends as well)

This is the first issue you need to address.

You will be paying Corporation Tax on the profits and surcharges on the undistributed investment income.

Then when you take it out, you will pay Income Tax on it or CGT.

Regarding the undistributed investment income, this would not be applied if the ETF I'm purchasing is Accumulative, right? The dividends would be auto-reinvested into the fund and there would not be any profits or undistributed investment incomes (dividends).

I do understand as well that CGT through company would be on 25%(instead of the 33% or 41% from personal), then I'd have to pay Income Tax.

Do you own a home?

That should be your first investment priority and you can't buy a home if your money is stuck in your company.

If you own a home, you should be getting the mortgage down.

I do not own a home, but have personally around 200k in capitals (between shares/deposits/ETFs/savings account) that could be liquidated towards a more favourable investments.

 

[Brendan Burgess]

Regarding the undistributed investment income, this would not be applied if the ETF I'm purchasing is Accumulative, right? The dividends would be auto-reinvested into the fund and there would not be any profits or undistributed investment incomes (dividends).

I do understand as well that CGT through company would be on 25%(instead of the 33% or 41% from personal), then I'd have to pay Income Tax.

You might be missing the point.

You should not own investments through a limited company. You should not leave profits in a limited company, as they will be taxed twice.

If you have a written exit plan written for you by a tax advisor, then maybe you know what you are doing.

 

[T McGibney]

If you have a written exit plan written for you by a tax advisor, then maybe you know what you are doing.

Nobody ever has a written exit plan written by a tax advisor, Brendan, except perhaps tycoons who are impervious to the high cost of tax advisors.

 

[ClubMan]

I do not own a home, but have personally around 200k in capitals (between shares/deposits/ETFs/savings account) that could be liquidated towards a more favourable investments.

Shouldn't this be your priority for your personal finances so? Normally that's the recommended general approach - buy a home, get the mortgage down to a "comfortable" level, max out pension contributions, etc.

 

[Brendan Burgess]

I do not own a home, but have personally around 200k in capitals (between shares/deposits/ETFs/savings account) that could be liquidated towards a more favourable investments.

I misread this as "I do own a home".

Get your priorities right.
Get the money into your own name and buy a house.
It is the best, tax-efficient, investment available to you.

 

[Fortune]

Indeed, but at the time there was still uncertainty for recovery I held on my decisions (due to the layoffs trends as well)

Ignoring that being the time to get into equities, there's been almost 4 years to have corrected that decision