Investing money as company or as individual

vmb · 24-08-2018 9:42pm #1

Hi. I'd like to start investing some money, and I do not know what approach is better.

I have my own LTD company (software consultancy), and we have much more income than expenditures. Expenditures are only two salaries and our accountant, so we have a huge surplus every month.

In my opinion, it makes more sense to invest company money, as it is gross. I won't need to pay CT for some time yet. If I invest the money as individual, I need to pay paye etc before, and that's >50%....

My investment approach would be simple / conservative. I'm not planning to take big risks, but I do not want to lose money from inflation either, so I am planning to open a Degiro account and start with indexes and national bonds.

What do you think?

Rulmeq · 25-08-2018 8:55am

Pension. You can take early retirement at 50 if you need to access it. If you are dealing with more than 100k in savings talk to an adviser about maybe seeting up a SSAP (small self administerd pension scheme). Depending on your age, you can invest up to 40% of your annual income into the scheme, and you can direct where the funds are invested (with some limitations on things like buying yourself a house - i.e. neither you nor your spouse can directly benefit from the funds).

Any gains made will not be subject to CGT, DIRT, etc. so the fund can benefit from all the gains made (obviously you can make losses too). Fees can be high, but you should be able to negotiate on those.

When you retire, you can take a tax free lump sum, and then have an income from the pension.
BTW, if I had my time over, I would have set up a single person company, and paid my other half a salaray - so that they would be entitled to the contributory state pension.

vmb · 25-08-2018 9:48am

I already was thinking about pension, but the maximum with tax relief is too low:

Age Amount which qualifies for tax relief
30 to 39 years 20%

We can be saving thousands euro per month, and we do not want to have huge salaries. We do not need them nowadays.

Furthermore, my savings plan is based on that my health is completely unpredictable. I'm in my early 30 but with a serious chronic disease, I could have to stop working within 5/10/20 years, I don't know when.

Until that happens, hopefully never, I am earning a lot of money, and I want to protect my future, so some liquidity is mandatory. I can't freeze money until my 50s, maybe I will need it earlier.

I agree about the advisor, my situation and interests are complex, but at the same time my financial knowledge is not too high.

Thanks!

Jim2007 · 26-08-2018 9:32am

Most pensions have incapacity and disability exit clauses, do some research.

Rulmeq · 26-08-2018 10:13am

I can understand your reluctance to tie up your money, however you really need to talk to a professional (yes, they will charge you). You also need to be very careful, because tax on investment income can be 25% in companies (you will need to to your own research to see if this applies to your situation*), also there's a tax on retained profits kept in a company (it's not that much, but it could be another 1 or 2% taken out of your profits).

* https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-02/02-02-01.pdf

A 25% rate is charged on certain profits of companies. The 25% rate applies to non-trading income including income chargeable under Case III(e.g. discounts, interest, foreign income), Case IV (miscellaneous income) and Case V (rental income from land & buildings in the State) of Schedule D. Also included at this rate is income from activities which consist of working minerals, petroleum activities and dealing in or developing land, other than profits from construction operations (section 21A TCA).

vmb · 26-08-2018 11:02am

Thank you all, I am definitely contacting an advisor.

Of course, I'm willing to pay for the service. I rather pay someone with real knowledge than getting an interested recommendation.

I'm going to ask my accountant, maybe he knows a good advisor. Is that what you would do? I don't know people with real financial background.

ANXIOUS · 26-08-2018 9:43pm

The 20% limit to contributions is for your contributions. You're company could make in excess of 20% contributions to your pension and if depending on the severity of your illness you may be able to access the pension before 50.

28-08-2018 1:35pm

vmb wrote: »

I already was thinking about pension, but the maximum with tax relief is too low:

Age Amount which qualifies for tax relief
30 to 39 years 20%...........

With an executive pension the ordinary annual contribution limits are far in excess of that

murra · 05-09-2018 2:03pm

If you set up a executive pension scheme, you are not limited to the salary and age contribution scale i.e 20% of earnings up to a max €115k.

You could contribute to the pension directly from the ltd company before paying your salary. Contributions are treated as a business expense which will reduce your CT bill at company year end.

Your other option if you did not want to contribute to a pension scheme is to invest money through your company directly. This can be done via a gross roll-up investment structure. Effectively, you invest a lump sum today through the company. The funds can grow in a tax deferred environment for an 8 year period. At the end of the 8 years or if you withdraw funds from the investment before the 8th anniversary, you will pay a 25% exit tax on any gains made in the investment.

You could subsequently continue with the investment and the 8 year period starts again or draw the proceeds from the ltd co at which point you will pay income tax, USC and PRSI as applicable.

ixus · 10-09-2018 9:56pm

As above. Director's pension are a different game to standard. Especially if you have a partner who is also a director on the payroll.

You can't invest money you earn from one business into trading it within the one company to avoid tax. IT services and investing are separate and must be treated as so.

A holding company that owns two separate entities may be an option depending on funds.

Caution all that with not risking what you can't afford to lose.

Alan C. · 21-02-2020 5:50pm

Just a follow up on this. What was the advisors advice? I was thinking of investing inn solisarity bonds with an Post but I am unsure if this is allowed under company law and therefore suffer penalities.

Investing money as company or as individual

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