Nearly 60 and big tax bills on ARF withdrawals coming up

S

Sharpie

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I am a self employed sole trader and approaching 60 in July. .

My spouse,55, has done unpaid paperwork , adminstration and phone calling for me in the background for the last six years without payment.

My query is I have a very decent private ARF from a directorship I previously held which I am obliged to draw from from my 60th birthday otherwise I pay full tax on notional drawings.

If I draw this and add to my wages , I will pay tax based on single person tax credits

Say €40k salary plus €42k mandatory withdrawal = €82k per anum.

My question is : as a sole trader , going forward , could I pay my spouse or go in to partnership with her to allocate some tax credits and allowances and thresholds to her to reduce our tax liability going forward.?

How do you think Revenue would view this and what kind of tax savings are possible?



Thanks in advance for any advice,
 
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This happens a lot.

Yes you can employ your spouse in the business and establish an executive pension for them.

The good news is that you can provide a pension of 2/3s of final salary after 10 years service which is fully tax deductible as a business expense so there is a lot of scope here for planning.

viewer.joomag.com

Employee benefits a guide for employers Employee Benefits - A guide to the taxation of emp

This guide is intended to highlight and suggest in general terms the key benefits that employers should consider both in order to minimise the tax liabilities of their employees and also to provide benefits which might ordinarily be considered prudent by any responsible employer
viewer.joomag.com viewer.joomag.com


Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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Thanks Marc. What kind of PAYE, PRSI and USC should we expect to pay if my wife takes €17k in income and I take say , €23k and I also take the €42k contribution from the ARF ?
 
If you have the ARF income coming up you may wish to change that split of earnings to give more income to your wife if you can support that planning option.

Also you can still contribute to a personal pension/PRSA tax relieved at the normal levels and she can have an executive pension. If you had more years we’d have given consideration to setting up a limited company.

So I prefer to start with the question, how much Net income do you want and try and get to that solution.

It’s a shame you already have the ARF as there are so many more options with pre ARF pensions. Do you know why you didn’t just leave it as an executive pension?
 
Its difficult to answer that question , Marc but I know is I will be obliged by pension legislation to take 4% of the ARF per anum, i.e : €42k per anum.
My self employment will generate €40k for us comfortably and we're happy with that. Thats €82.k We would like to think we can secure an annual nett income of say , €65K but if we can generate more by good tax planning all the better.
My wife already has another PRSA pension pot in her own name for €80k if that helps.
 
This is approximately your current position

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Compare this with say both earning 10k with the balance saved as pension contributions

1619550636262.png


A big change in tax but not such a big change in net income.

All we do is fiddle around with these until you get the net income you want and stuff the rest in a cushion down the back of the sofa so to speak.

Source PWC online tax calculator


Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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As I say , am in a similar position to Sharpie but I wander if Revenue would be happy / comfortable with that arrangement or would prior agreement have to made with them seeing as his wages drop by €30k and his wife ‘d coincidentally grows from 0 to 30k overnight.
How much of the surplus €20k pension contribution on Sharpie’s wife’s wages is
tax deductible as it is 66% of her income.
Massive savings there in fairness to be made .
 
Not a problem if you are self employed and employing a spouse. Happens all the time although not nearly as much as it should. Accountants constantly miss this.
 
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Interesting... and so whats the situation with the spouse’s pension contribution . How much can be put in to an executive pension without penalty and tax efficiently ?
 
From my earlier post

The good news is that you can provide a pension of 2/3s of final salary after 10 years service which is fully tax deductible as a business expense so there is a lot of scope here for planning

you are able to access the same pension funding rules as a TD
 
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Very informative calculator, thanks.
Just wondering does anyone know how one would input a public service defined benefit in the Current Benefits section?
 
The valuation factor used to calculate the capital value of an individual's defined benefit pension rights has been changed from a standard capitialisation factor of 20 to a range of higher age related valuation factors. This change applies to pension benefits accrued after 1st January 2014. As such a split calculation will apply with (i) a standard valuation factor of 20 used to calculate the value of benefits accrued before 01/01/2014 and (ii) with age-related valuation factors applying to benefits accrued after 01/01/2014.

A table of rates for retirement at different ages can be found on page 23 of this document



Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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At what date is it necessary to withdraw the mandatory 4% ARF payment as in Sharpie’s original post.? Is it on the actual 60th or 61st birthday or at the start /end of the tax year in question.
Also , in reply to the same post , Marc mentions that Sharpie’s spouse can contribute 2/3 of salary after 10 year’s service .
What qualifies as 10 year’s service , if the wife is only being paid from day one in this partnership now from scratch ? Do previous years of employment in other jobs come in to the calculations ? Thanks in advance.
 
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