Earlier this year the Finance Act included some significant positive changes to the pension regulations in Ireland.
Up until January, the maximum pension contribution that a company could make to a Director or Employee’s pension was calculated using a number of different factors including your years of service, your age, the size of your existing pension fund and the number of years you have until retirement.
This method would typically allow a business to put a multiple of salary from the company bank account directly in to the individuals pension before the company year end.
For a company with a lot of cash on the balance sheet this method of pension funding was attractive but it was limited to a certain amount each year and therefore it could take a while to extract a lot of money out of the company.
In January 2023 the Finance Act effectively changed the funding limit from a yearly calculation to a lifetime limit.
This means that a company can now make a pension contribution to a Personal Retirement Savings Account (PRSA) of up to €2 million in one single contribution.
In addition to that, the restriction of only permitting 50% of your pension invest in a single asset (i.e. property) has also been removed meaning you can now use your full PRSA fund to purchase an investment property tax free.
These amendments certainly took the industry by surprise and there is some suggestion that these rule changes may be closed off given the big uptake in PRSA applications and the resultant reduction in personal and corporate tax collected by the exchequer next year.
For now there has never been as big an opportunity for company owners and directors to extract as much money from their business as tax efficiently as possible.
If you would like to explore the new pension funding rules in more detail, contact me at dcoleman@colemanfinancialplanning.ie or call 01 5313711 or through our website here.