Getting ready for the future now

[ClubMan]

I am pretty sure this type of plan is better than any pension contribution, full tax relief essentially at your marginal rate

You mean contributions to the incentive scheme are from gross income before tax? Are you sure about that? And usually discounts on share prices are assessable for income tax etc. and eventual gains are assessable for CGT. In short, stock incentive schemes are often (usually?) less favourable from a tax point of view than pension contributions.

Employee share schemes

Employees in Ireland can get shares, or share options, from their employer free of income tax under certain conditions.

www.citizensinformation.ie

 

[Cameo]

Not contributions as such but if it's an ESOP then you can invest your bonus in shares (up to euro 12700) without paying income tax and if you keep for 3 years no further income tax, yes you are subject to CGT which would be a good complaint to have.

 

[ClubMan]

Not contributions as such ... yes you are subject to CGT which would be a good complaint to have.

Two complaints you don't have with a pension due to tax relief on contributions and gross roll-up.

 

[Cameo]

Two complaints you don't have with a pension due to tax relief on contributions and gross roll-up.

I guess you could think of it as an annual contribution if bonus awarded annually as is normally the case

Biggest advantage is you only need to lock the money away for three years

clearly ideal would be to max pension contributions and participate in ESOP too

No future income tax liability on ESOP where you are likey to be subject to income tax on pension in the future (after taking Tax free cash)

That's another big advantage over a pension

 

[Blackrock1]

until an optimum time for sale.

Which would be?

 

[Calypso]

Which would be?

Could be a variety of things in the near to medium future, for example 1) the housing market starts to stagnate 2) the good tenant I have had for the past seven years decides to move out 3) the area is added to the rent pressure zones 4) the funds of a sale are needed to fund other matters e.g. kids college.

 

[Calypso]

You mean contributions to the incentive scheme are from gross income before tax? Are you sure about that? And usually discounts on share prices are assessable for income tax etc. and eventual gains are assessable for CGT. In short, stock incentive schemes are often (usually?) less favourable from a tax point of view than pension contributions.

From reading the link you added, the share scheme is an Approved Profit-Sharing Scheme.

Bonus is paid once a year and is 5k. It can be put into shares for three years and is then accessible tax free.

The first of mine will be maturing in 2027 (just when my mortgage on PPR ends).

Would the most tax efficient thing to do not be to invest the bonus in shares, allow it to grow for three years or more (if needed), and then when it’s in a positive, take it out and invest it in pension via AVC then?

 

[Blackrock1]

Would the most tax efficient thing to do not be to invest the bonus in shares, allow it to grow for three years or more (if needed), and then when it’s in a positive, take it out and invest it in pension via AVC then?

Why is that more efficient that investing directly into your pension? As you arent maxing out your contribution allowance you can put this 5k in directly gross anyway, so the only reason not to put it into your pension directly is if

a) you believe your co shares will outperform your pension investment or
b) you want the option not to put it in your pension after 3 years

 

[Blackrock1]

Could be a variety of things in the near to medium future, for example 1) the housing market starts to stagnate 2) the good tenant I have had for the past seven years decides to move out 3) the area is added to the rent pressure zones 4) the funds of a sale are needed to fund other matters e.g. kids college.

sure, but usually the time to sell is before these things happy not after.

 

[Zion2022]

Why is that more efficient that investing directly into your pension?

Surely because the APSS is actually true full tax relief at 40% whereas a pension contribution is merely a tax deferral.

The OP could also put 12,700 in the APSS. Get 12,700 back in 3 years (+- any investment gains/loss), put that €12,700 into his pension and get a further 40% tax deferral assuming he had enough gross income and pension contribution limit to do so.

 

[Calypso]

sure, but usually the time to sell is before these things happy not after.

1. The housing market shows no signs of stagnating, it’s continuing to rise. I could have sold last year but the price has gone up at least 10% since.

2. The tenant is not interested in moving out. If he rang me to say he was moving out, I’d say grand and ring the auctioneer to start the sales process.

3. If anything, the government is looking at trying to abolish or refine the rent pressure zones - according to Matt & Ivan anyway.

4. College is 3-4 years away and my first child may not even go.

Selling the property is certainly in my planning but there’s absolutely no need for me to rush into it.

 

[Calypso]

Surely because the APSS is actually true full tax relief at 40% whereas a pension contribution is merely a tax deferral.

The OP could also put 12,700 in the APSS. Get 12,700 back in 3 years (+- any investment gains/loss), put that €12,700 into his pension and get a further 40% tax deferral assuming he had enough gross income and pension contribution limit to do so.

That was my thinking on it. I can have the benefit of the tax free shares and growth on them and then put the funds into the pension in 3 years when they mature via AVC.

 

[Blackrock1]

The OP could also put 12,700 in the APSS. Get 12,700 back in 3 years (+- any investment gains/loss), put that €12,700 into his pension and get a further 40% tax deferral assuming he had enough gross income and pension contribution limit to do so.

Maybe I am being thick but how is this better, say you put 10k into the scheme from your gross income, it comes out as 12k 3 years later and you put that into your pension.

How is that better than putting 10k into your pension that is also worth 12k 3 years later with investment growth?

 

[conor_mc]

Maybe I am being thick but how is this better, say you put 10k into the scheme from your gross income, it comes out as 12k 3 years later and you put that into your pension.

For all intents and purposes, the 12k going into the APSS is effectively a €4,800 subsidy from the Revenue.

After you put the resultant 12k into your pension, you get a further €4,800 back from the Revenue = €16,800.

 

[Calypso]

For all intents and purposes, the 12k going into the APSS is effectively a €4,800 subsidy from the Revenue.

After you put the resultant 12k into your pension, you get a further €4,800 back from the Revenue = €16,800.

Yes, that was my thoughts. For example, I am avoiding tax this year on the money I put into shares.

Then, in 3 years when they mature, I can get a tax refund by depositing them into my pension.

Even if they go into a negative, I can hold them for a further period if needed until the best time to draw them.

 

[Zion2022]

Even if they go into a negative, I can hold them for a further period if needed until the best time to draw them.

I’d avoid this line of thinking. ‘Sunk cost fallacy’. The best time to sell APSS shares (and potentially put them in your pension) is always the first day they vest. Whether they are up or down in value is not relevant.

Holding onto them implies a belief these particular shares will outperform the wider stock market (with conviction so strong you’re willing to forgo diversification), purely on the basis they have performed poorly over 3 years. There is no sound logic underpinning this.

With APSS, as long as they don’t fall 40%, you’re still winning…if they do fall more than that. Accept it and move on.

 

[Zion2022]

How is that better than putting 10k into your pension that is also worth 12k 3 years later with investment growth?

Explained well by subsequent poster that essentially you can double dip the tax benefits.
I would also say, many people view their retirement fund as ‘net’ money. Even with large pots I see people add the total value to their net worth. Incremental contributions to a pension pot of any reasonable size will be taxed at 15%+ possibly 40%+ if large pension. €10k in your bank account is just more valuable than €10k in your pension (this ignore behavioural pieces like some people needing to put money ‘out of reach’)

For the 3 main share schemes offered by many employers I value them as follows relative to directing money to a pension

1. Company Matched Pension contributions
2. Share matching purchase schemes (2 for 1 shares)
3. APSS
4. Non matched pension contributions
5. Save as you earn share options (if your company has a very volatile share price this can be more valuable)

 

[Blackrock1]

After you put the resultant 12k into your pension, you get a further €4,800 back from the Revenue = €16,800.

thanks i was being thick!