Retirement Planning Strategies for Business Owners in Ireland

Retirement marks a significant milestone in life. And I believe it fair to say that it is especially so for many business owners, who have often spent years nurturing their beloved businesses!

In Ireland, effective retirement planning is crucial, not just for ensuring a comfortable retirement but also for optimising tax liabilities.

The main reason I am choosing this short topic this week is because when one hears the words ‘retirement planning’ one may automatically think of ‘pensions’. However, in any effective strategy, a pension is only one of several tools at your disposal to maximise your financial life.

Key Points

• Common reasons for not maximising
• Pension contributions
• Holding company
• Severance pay
• Business asset relief
• Professional advice

The Problem

I believe it is really important to understand the tax environment in Ireland when you are building and approaching the exit of a business. Many people build successful businesses and then sleep-walk through the exit, often missing out on valuable reliefs and opportunities.

Why does this happen? Why do business owners sleep-walk their way to missing some great opportunities?

I’m not 100% sure why, but here is a stab at a few reasons;

• They are too busy running their business to think about all that!?
• Their accountant or advisor never mentions it (because it’s not their bag, there is nothing in it for them to raise it, or they are not aware of it?)
• They can’t find anyone that they trust enough and who is competent enough to guide them?
• They are skeptical of anything that they perhaps perceive as too exotic for them?
• They are reluctant to spend the money to explore the opportunities?
• They feel their affairs are not significant enough to warrant ‘all that’!?
• They focus purely on pensions?

Whatever the reasons, don’t do the same!

The country offers several tax reliefs and incentives designed to aid in retirement planning and business exit. However, navigating these can be complex no doubt, and it’s advisable to consult financial, tax and legal advisors for personalised guidance to ensure you maximise things.

Here’s a quick hit on the potential ideas, and this is not exhaustive!

Pension Contributions

One of the most efficient and most well-known ways to tax efficiently get cash out of business is to save for retirement. This reduces tax liability for the business while also getting funds into your name within a pension structure.

As well as the company making contributions, you can personally contribute to reduce your own Income Tax bill each year. In Ireland, personal contributions to a pension scheme are tax-deductible at your marginal rate, up to certain limits based on age and income.

This can provide significant tax relief while building a substantial retirement fund. If they haven’t already and the business has the capacity, business owners should consider maximising their pension contributions in the lead-up to retirement.

Dramatic changes in how a business can contribute to a pension for any employee should not be ignored, and more info here in our Blog from earlier this year.

Pensions are one route – but they are not the only route, and in an ideal scenario, should be combined with a sprinkling of some other routes also.

Retirement Relief on Business Assets

For business owners, liquidating, selling, or transferring business assets to the next generation can be part of their retirement plan. Thankfully, Ireland offers various retirement reliefs on Capital Gains Tax (CGT) for such transactions. This relief is applicable under certain conditions, such as age and length of ownership, and asset type, and can significantly reduce the tax burden when disposing of business assets.

Entrepreneur Relief and Retirement Relief are 2 well-known and often used strategies to tax efficiently exit. See Blog 219 where we explored and compared pension contributions versus Entrepreneur Relief!

Holding Company

Some say that the most tax efficient a business owner with plenty of cash can do is to max pension benefits, as well as pay dividends up to a Holding Company. There is lots to consider in all of this (such as what to do with the Holding Company in the future!). But there is no denying that it can be an effective tool and could be the cherry on top for your financial future. More info here in Part 20-01-14 of The tax and duty manual from Revenue.

Severance Payments

In Ireland, there are exemptions and reliefs that can mean you are entitled to pay yourself a very handsome severance payment tax-free. There are three relief exemptions, and the highest exemption may be claimed subject to you qualifying for it. And under current legislation, that can be up to €200k tax free severance payment, separate from any pension lump sum! More info here in recent Blog 234, and again, worth knowing and possibly applying as part of your own exit or that of a loved one!

The Role of Professional Advice

While this article about retirement planning strategies for business owners provides a general overview of some of the tools to help you get the cherry, every business owner’s situation is obviously unique.

The interplay between business assets, personal wealth, and retirement goals necessitates specific personal advice. A team of financial, tax and legal advisors should be able to provide tailored strategies, considering your specific circumstances. Doing so could mean the difference between having a good exit and having a great exit!

Final Thoughts Retirement Planning Strategies for Business Owners

Retirement Planning is about so much more than pensions. The reality is that very few financial advisors or accountants will every encourage you to think about anything but pensions, due to lack of care or lack of competence. And while getting your pension funded or your annual accounts filed properly are important, there are many other potential cherrys that you should be encouraged to consider as part of your bigger picture. Don’t miss out – we all want that cherry!

Merry Christmas – Paddy Delaney QFA RPA APA