Mastering the Art of Tax Efficiency


Good morning, everybody. Thank you for joining us at this morning’s webinar. My name is Enda Brady. I’m a certified financial planner and one of the owners of iQ Financial. You’re all very welcome. Today’s webinar is titled mastering the art of tax efficiency. And it covers strategies from our experience that we believe really help business owners when they make decisions about their taxes. At the start some housekeeping so that we can make the most of the next half hour or so, I’ll pass you over to Maria. Maria is our senior financial planning administrator, and she’s the office manager in iQ Financial, and Maria will explain – over to you, Maria.

Hello everybody. My job today is to keep things running smoothly. So we’re on track and on time, and I’ll keep an eye on any technical issues and any questions you might have. The way you can get involved is to use the q&a function, which is by clicking the q&a button at the ribbon on the bottom of your screen. And then you can type in your questions or comments. And we’ll answer some questions at the end. And if we don’t get to yours during the webinar, we’ll follow up with you individually. After the webinar, we’ll send you a follow up email and it will have a recording of this session, the slides and some links to IQ Financial guides and our website. So if you miss anything the first time around, you can catch up later. Okay, I’ll now hand back to Enda to get started. Thanks, Maria.

To set the scene for this morning’s webinar. The strategies we will discuss this morning, sit in the area that crosses between the advice you should expect to get from your tax consultant, and the advice you should expect to get from your financial planner, the reliable tax strategies that improve your personal wealth. Tax Planning is very much a team sport. Before you make any decision, you should consult both your financial planner and your specialist tax consultant.

The four topics this morning are importance of extracting capital from your business, the options for taking wealth from your business, how a pension can reliably save tax and build long term wealth, and the final area is the benefits of knowing your number, a strategy that may not have been explained to you before.

So why is it important to extract capital from your business? As a business owner, if your plan is that at some point in the future, there will be a sale of your business that will provide for you thereafter, relying on sale proceeds alone to provide for your personal needs can often be a risk you do not need to take.

You’re relying on there being a market for your business, you’re relying on favourable valuations being available, and you’re relying on accommodating tax rules to provide a net amount for your personal needs for the decades after that. And you’re all relying on these happening at the same time that you want to sell or may need to sell in the future.

The vast majority of businesses will end in one of the following three ways. Your business will be sold to a third party, your business will be sold or passed to your family, or your business will be wound up and liquidated (many times in an orderly fashion).

A lot of business owners don’t see the difference between personal and business assets. Their purpose, their time, their energy is intertwined with their business and putting in place a plan to ensure personal needs are dealt with, irrespective of the future exit strategy from the business is something business owners ask us about.

So how can you ensure as a business owner, that you have the money you need for yourself and your family and have the flexibility to decide on how you want to exit your business in the future? When a business owner has accumulated personal wealth through their working career, it puts them in a much stronger position to deal with options for their business down the line. And knowing those options to extract capital from your business will help you be in a much stronger position to make those decisions in future.

The options for taking wealth from your business – in our experience there are five main options available for business owners to help them take money out of their business. Paying yourself a salary from your business can help extract wealth over the course of your career. This of course is subject to income taxes and you’ll pay up to 52%. Dividends are less common option than salary. Dividends are subject to dividend withholding tax and dividends can only be paid if your business is profitable in that year. For owners of limited companies, you can pay yourself a salary and run a loss in an individual year, but you can’t pay yourself a dividend if there’s a loss.

You could use your business cash flow to purchase assets for your personal use, such as a car is probably the most common example. This is subject to what’s called benefit in kind tax or Bik.

A fourth option is the sale or liquidation of your business. There are important reliefs to be aware of – entrepreneur and retirement relief and termination payments. These reliefs have the effect of reducing the amount of tax paid when you sell or liquidate your business, or they give you the option to take more cash out of your business.

The final option is to use pension accounts that are available to business owners. As a business owner, you can accumulate up to 2 million in your pension account, up to 4 million for a working couple in your business. And there are ways to access tax free and tax reduced lump sums when you retire.

I want to explain these reliefs and options if you sell or liquidate in a little more detail. If it comes to the point where you’re selling your business or you’re winding up your business, the three reliefs we have mentioned are retirement relief, entrepreneur relief and termination payments.

Retirement relief. This leads to a reduction in the amount of profit that is subject to 33% capital Gains Tax when you sell or liquidate your business. There are two types of retirement reliefs and they’re both available from age 55. So age 55 is an important age from a planning perspective. The two types of retirement relief apply, depending on whether you’re disposing your business to a child, or whether you’re disposing your business to somebody outside of your family. So firstly, if you’re disposing or passing your business to a child, between age 55 and 65, you can claim full retirement relief. For every million of value, you save 330,000 of potential capital gains tax costs. If you’re age 66 or over relief is restricted to 3 million euros. They’ve announced a change in budget 2024 In this regard, and it applies from 2025. From January 2025 you have up until age 70 to pass your business or farm to your child, but there are capping the maximum value of your business or farm at 10 million euros Previously it was uncapped.

If you’re disposing your business or farm to somebody from outside your family, you could receive 750,000 euros without paying capital gains tax between age 55 and 65. That would save you 247,500 euros compared to paying 33% on the value. And you can receive up to half a million at age 66 and older. This would save 165,000 in tax. So these are significant numbers and a relief that you should be aware of when it comes to how you’re going to exit your business in future years. That’s retirement relief.

The second relief is called entrepreneur relief. This again leads to a reduction in the amount of profit that is subject to the 33% capital gains tax. The key information here is that the first 1 million of gain from the sale or liquidation of your company is subject to 10% capital gains tax rate. So instead of paying 330,000 tax, on the first million of gain, you pay 100,000, which is a saving of 230,000. It’s a significant saving. There are some other conditions attached to entrepreneur relief, you have to spend 50% of your time working in the business, you have to have at least 5% of the shareholding and be in a managerial role, you must have held the shares for three consecutive years.

The final one of the important three reliefs, is termination payments. A shareholder in a company can receive a lump sum payment exempt from tax on redundancy or retirement from that business. There are different methods for calculating how much cash you might be able to get out of the business under the termination payments rule. And it depends on business cash flow and how much cash is actually in the business at that time. There are three different calculations and your tax advisor will be the expert at those calculations. The longer your length of salary employment, the greater the amount that you can qualify for under the termination payments rule, and there’s a lifetime limit of 200,000. When you’re planning the exit from your business, it’s important to know that these reliefs are available. It’s important to know the amount of funds you could extract from your business and the amount of tax that could be saved.

There is a new relief just announced for business owners who invest in other businesses. We’re focusing this morning on business owners and business owner families who work in their business, the new relief is worth bringing to your attention however. It’s called angel investment relief for investors in startup or small businesses, where the capital gains tax rate announced is set to be 16% instead of 33%. The details are not finalised. but if you have questions about angel investment relief, please let us know after the webinar, and between ourselves and your tax advisor we’ll be able to get you the details when they are finalised. We’ll just take a pause there before we talk about the final two areas that we want to cover this morning. And Maria has a reminder for you.

Yes, so if you have any questions or comments, you can just use the q&a button which is in the ribbon at the bottom of your screen. So go ahead and type any comments you have.

Thanks, Maria. We’re now going to look at two areas. How a pension can reliably save tax and build long term wealth. And we’re going to talk about a strategy that may not have been explained to before now. So how can a pension reliably save tax and build long term wealth for you?

Let’s use an example for this. These clients are both age 50. And we’re conscious that we’ve talked about self employed and we’ve talked about business owners and we’ve talked about limited companies. In this example, these are two self employed business owners who because of their business cannot incorporate and we’re calling them Barry and Frances. Existing pension funds for Barry and Francis in this example, and the other investments property that Barry and Francis have come to 1.2 million, excluding the value of their home. Barry’s salary is 120,000, Francis has a salary of 40,000. And in this example, we’ve worked out that their target retirement fund is two and a half million. So two and a half million is their number. How are Barry and Francis going to get to their number.

Let’s look at this example. So Barry and Francis have a few options. They can look forward and they can try to grow their turnover in their business and try to get more salary potentially pay up to 52% in taxes and invest that extra salary to try to build up additional funds. They could sell part or all of their business. There could be, depending on their business opportunities to incorporate in future and that would give them more options. Barry and Francis can also look at pension funding. When you’re self employed, you can use a rising percentage of the first 115,000 of your salary depending on your age, and get tax refund on that amount when it’s lodged into your pension account. For Barry and Francis who are both age 50 they can between age 50 and 54 lodge up to 34,500 a year to their pension accounts. Between age 55 and 59 they can lodge up to 40,250 euros a year to their pension account. And from age 60 and older they can lodge up to 46,000 a year to their pension accounts. You can deduct the amount you lodge to your pension from your income and pay less tax because you are being taxed at a lower amount of salary.

So how can pension funding be the reliable foundation for Barry and Francis to achieve their two and a half million target. Looking at where they will be in 10 years from age 50 up to age 60. If they invest in line with the maximum reliefs available, Barry and Francis would have the scope to invest over half a million euros over the next 10 years to their retirement fund and using a conservative yearly return over 10 years, of 4.5%, the 850,000 that they started with, with the additional 500,000 invested would grow to 1,939,054 euros, almost 2 million. Getting that would break the back significantly on the retirement target, and it takes the pressure off a sale of the business in the future.

Why should a pension be the foundation here in this scenario? We can think of at least 10 reasons why a pension should be at the heart of tax efficient planning for business owners. The first benefit is income tax savings. Your taxable income is reduced by the amount you lodge to a pension account saving up to 52% of the amount lodged. The second benefit is corporation tax savings. If you’re a company owner, your company can lodge funds from your business bank account directly to your personal pension and include that amount as an expense and your corporation tax profits are reduced by 12 and a half percent. There’s no benefit in kind applied to your pension contributions. Any gains and compound gains if prudently invested can grow tax free in your pension accounts for as long as your pension account exists. You can accumulate up to 2 million in your pension account. At current rates. This could save you over a million euros in income taxes over your career, up to 4 million can be accumulated for a couple and potentially over 2 million income tax saved. If you employ your family in your business, you can accumulate up to an additional 2 million for each of your children as part of your succession or estate plan. Then when it comes to taking money out of your pension accounts, you can access up to 440,000 via tax free or tax reduced lump sums up to 880,000. For a couple. You can access pensions from previous employments from age 50. You can access your pension account for your current employment from age 60 and continue to work if you wish. Any unspent pension funds are available to your state if you die. And finally, there is an income exemption of 18,000 per annum or 36,000 for a married couple, where you can earn up to 36,000 a year as a married couple without paying income taxes. Pension income in retirement is one of the incomes that qualifies as part of that exemption. Pensions are probably the most reliable way to build wealth from your business.

Finally, here’s the strategy that may not have been explained to you before. It’s important for business owners to know the retirement funds they need to accumulate to give them the choice to work. So knowing your retirement fund, knowing your number is part of your tax planning and financial planning should add real value here. When you do a financial plan, you will list what is important to you. You will put a figure in today’s terms on what your desired lifestyle would cost. Then you can estimate the retirement funds you need at the age you want the choice to work. You will know what you need to invest each year to get there. It’s a team sport as we’ve said before, your financial planner should project manage your plan working with you, your accountant, solicitor and your tax advisor.

Why is knowing your target retirement fund important for tax planning? If you know your target fund, you can make better decisions. You can make better decisions about the amount of salary you should take from your business which can save your tax. You can make better decisions about how much cash you need to keep for emergencies, both in your business and personally. Better decisions about how much you need to invest each year. How much is the minimum you need to get if you sell your business? The returns you need to achieve and you’ll know how best to use the available tax routes. So tax planning starts with understanding your target retirement fund.

We also have more sophisticated technology to help us plan help us plan in a way that looks at your overall financial situation instead of forcing you to make decisions piecemeal. Something that can help you look at the different tax implications of decisions you might make.

In summary, before we take a couple of questions, the 4 areas we covered this morning are the importance of extracting capital from your business, the options for taking wealth from your business, we looked at the reliefs available there in particular, how a pension can reliably save tax and build long term wealth, and knowing your number, the importance of knowing your target retirement fund as part of your tax planning. So, Maria, I’ll take a breath there, we can now take a couple of questions.

Yes, I’ve got some questions here. The first one is, I own a business, but don’t take a salary from it. Can I make a contribution to a pension from that company?

The short answer to that question is no. The question was, I own a business, but there was no salary been taken from that employment. Maria, is that it? Yeah, yeah, that’s it, but can they contribute to a pension.

Okay. So you need to be, you need to be taking a salary from your business before you can make a pension contribution. There’s a lot of flexibility. There’s no minimum salaries that you need to be taking. So there is flexibility there. But you do need to be taking a salary from your company in order to make a pension contribution for that employment.

Okay, that’s great. I have another question. It’s, do you help business owners to sell their business ie market and find purchases.

So we help business owners, when they’re selling their business, we don’t match buyers and sellers. We don’t find purchasers for those business owners. But we do a number of things for business owners. So we do Financial Planning and Investment Management, we help the business owner with their plans so that they know what their targets are, and they’re maximizing their chances of achieving their priorities. If they’re lucky enough to have an option to sell the business, we help them figure out the minimum number they need. We’re a sounding board for them during the sale process. And we help them with investment management of the proceeds of the sale of their business. So we help them before during and after they sell their business.

Okay, thanks. Another question is, can I access my pension before age 65? Or before I retire?

Yes, we touched on that earlier, you can access pensions from previous employment from age 50. You can access your pension as a business owner from your current employment from age 60, not 65. And you can continue to work in that business, if you wish.

Thank you. And we’ll do one more question. This is what’s the maximum I can contribute to my pension. And what happens if I go over this amount.

So the maximum you can contribute to your pension is 2 million euros. There’s a lot of flexibility as a business owner, if you’re self employed, and you don’t have a limited company, we’ve gone through today, the different percentages that you can lodge into your pension. If you’re the owner of a limited company, you’ve more flexibility above that, to lodge large, different amounts.

So if you’re the owner of a limited company, you can lodge up to 2 million to your pension, that’s the maximum. Now you don’t want to be going over the maximum value that you have in your pension. So the maximum value you have in your pension is a little over 2 million. And you don’t want to be in a situation where the value in your pension before you retire is much greater than 2 million. If you go over that 2 million cap, you’re taxed in your pension account. It’s called a chargeable excess tax at 40%. So you’re taxed in your pension account if you go over the max. And then after you take tax free lump sums from your pension account, the balance of those funds are subject to tax as well. So it’s not a good idea for tax planning to be well over 2 million.

Okay, thank you. And as I mentioned any other questions we’ll get back to you individually to give you some answers.

Thanks Maria. As Maria said at the start, everybody who registered for our webinar this morning will get a copy of this recording. And then also get a copy of the slides. If you have any more questions about what you heard today, or any questions about any other financial query that you have, we’d love to hear from you. If you go to our website, which is, you can book some time in our diaries using the learn more call button at the top, where we will learn more about your query. You can email us using or call us on 071-9155560.

At iQ Financial, we help business owners make the most of their money so they can retire with confidence. We advise owners over 45 who want to sell, retire or make work optional in 5 to 10 years. We help owners plan for retirement, provide for their family and invest wisely. Thanks a million for your time this morning. We really appreciate it. We hope you got value from the time, we would appreciate any feedback you have to help us improve future events. And we hope to see you next time. Thank you and goodbye.

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