Proprietary Company Director
One problem facing a company director is how to turn company profits into personal wealth. An Executive Pension Plan is held in the individual director’s name but contributions to the pension are made directly from the company account.
There is no Benefit In Kind Implications for the pension holder. The company can avail of corporation tax relief up to 12.5% on the contributions made.
What are the limits for available Tax Relief?
Start Age |
Co. Director - % of Earnings* |
20 - 30 |
40% - 47% |
30 - 40 |
49% - 65% |
40 - 50 |
67% - 98% |
50 - 55 |
104% -137% |
55 - 60 |
150% - 251% |
>60 |
301% -1,511% |
Source Hibernian Life and Pensions
*Earnings are Gross Earnings including overtime, bonuses and BIKs. Earnings are capped at €262,382.
The following example demonstrates the tax efficiencies of contributing to a Director’s Pension versus paying as salary.
Salary versus Pension - Cost to Company |
| Employer |
Salary Increase |
PensionContribution |
| Salary |
€10,000.00 |
€10,000.00 |
| Plus employers PRSI @ 10.75% |
€1,075.00 |
€0.00 |
| Less employers tax relief @ 12.5% |
€1,384.38 |
€1,250.00 |
| |
|
|
| Cost to the employer |
€9,690.63 |
€8,750.00 |
Salary versus Pension - Benefit to Director |
| Director |
Salary Increase |
PensionContribution |
| Salary |
€10,000.00 |
€10,000.00 |
| Less PRSIpaid @ 5% |
€500.00 |
€0.00 |
| Less tax paid41% |
€4,100.00 |
€0.00 |
| Benefit to the Director |
€5,400.00 |
€10,000.00 |
Assumptions:
Corporation Tax is at 12.5%.
Company paying PRSI of 10.75% on Director Salary Increase.
Director is paying income tax at a personal rate of 42% on salary increase.
Director Paying PRSI personal rate of 3% with 2% health levy.
Wexford Financial Services Ltd is regulated by the Financial Regulator.
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