Exiting a business with a Directors Pension

A recent 2020 survey by AIB’s Business banking division found that 32% of all Irish SME owners presently operating are likely to exit their businesses within the next five years. This is no small figure, and it raises a number of questions not least about the economic impact of such a shift in business activity, with slightly over 60% of all businesses in Ireland being SMEs, but also on the method of Exit Strategy being deployed by each owner. From a financial planning perspective, the level of pension planning, mature or otherwise, in place is also a key concern. But how many will be exiting a business with a directors pension, one of meaningful value?

Are there not better ways to extract cash from my business?

While there are other ways many of them are not immediately tax efficient by comparison when you consider that a director’s pension contributions have no personal tax liability or BIK, the investment grows tax-free during the term of its existence and that the company benefits from corporation tax relief on contributions. In addition, up to €200,000 can be taken as a tax free lump sum on retirement providing there is sufficient funds in situ.

Starting as you mean to finish

The earlier that contributions start to accrue within a pension fund the better, but even “late arrivals” can take advantage of the contribution tax reliefs that are available to pension holders. The best way to do so is to have the business contribute to the pension fully with no cap at all on the company contribution level other than maximum funding levels imposed by Revenue. In recent years we have helped clients make annual contributions in the exiting years of at least €300,000 per annum.

I would add that with any financial vehicle there are rules and regulations to adhere to and that must be worked within in terms of overall limits held within a pension. Nonetheless its structuring and implementation over time is where Aspire Wealth Management can add value as we work collaboratively with your own tax adviser to ensure corporation tax and income tax are reduced while contributions are being made.

Are you ready to exit strategically?

The above-mentioned scenario might apply to you directly or you may be at a different stage within in the life cycle of your business and/or exit planning strategy. You may even have a different concern, one of succession planning to pass the business onto the next generation and how your next of kin or business successor will undertake these financial planning steps.

At Aspire we are very familiar with each of these concerns and more, helping clients to also implement personal and employee life protection where needed. Call us today on 01-8455827 to discuss your business exit strategy or use our call back option to set up a Zoom meeting or phone call at a time that suits you.