Accumulate funds in company?

zephyro

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If they could afford to do so, why couldn't/shouldn't contractors take only a small salary from their company such that their effective tax rate is no higher than 12.5%, and accumulate/invest the outstanding amounts after tax, with a view to retiring (very) early and running the accumulated funds down over time?
 
Nothing

the company would pay 33% on CGT gains and effectively 40% corporation tax on investment income.
 
And, of course, the retired director would pay tax at his marginal rate on the salary drawn from the company in retirement.

It's much more tax efficient for the company to put the money into a pension fund for the director.

The only way Zephy's scheme would work is if he puts the company into liquidation on retirement and gets the cash subject to CGT instead of income tax. But the long term impact of the tax within the company and the risk that the CGT rules might change make this a very risky plan.
 
And, of course, the retired director would pay tax at his marginal rate on the salary drawn from the company in retirement.
As a simplistic example, if the director stopped working at 45 with €600k in the company, is there any reason why he couldn't take say €30k per annum until such time as there was nothing left?
It's much more tax efficient for the company to put the money into a pension fund for the director.
I presume there are restrictions on how much can be invested in a pension fund and when it can be redeemed?
 
Why not opt for retirement relief and take up to €750k tax free on leaving service/ selling the business. Also investment income is not subject to CGT at 33%, it's classed as non trading income and taxed at 25%. Can be subject to further tax is not distributed within 3 years I believe.
 
Why not opt for retirement relief and take up to €750k tax free on leaving service/ selling the business.

1) Who would buy a shell company with a load of cash in it?
2) Do you get retirement relief on cash assets? I thought it was for selling trading assets.

Brendan
 
As a simplistic example, if the director stopped working at 45 with €600k in the company, is there any reason why he couldn't take say €30k per annum until such time as there was nothing left?

No. It will be taxed at his marginal rate though. If he builds up €600k by the age of 45, he is likely to have a lifestyle which would cost more than €30k a year.

I presume there are restrictions on how much can be invested in a pension fund and when it can be redeemed?
Yes, indeed there are. My concern is that you are doing some very advanced tax planning about accumulating funds within a company, without understanding the basics.

If you do decide to do something fancy, please make sure to pay for very good tax advice. But bear in mind that no tax consultant can guarantee you that the taxation regime won't change.
 
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