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Self Employed /Company Advice Please

John Electrician33

I am self employed Electrician aged mid 40's and have a company last 10 years. Previously i always withdrew all money from company (paid 50% tax) as was saving to buy a house for for my family, which we did last year. My partner is also employed in the company doing administration work. Im not sure what to do in the future.

1 - Should I leave profit in company and pay 12.5% each year then when reach between 55 and 66 liquidate the company and have a nest egg for retirement. Is it true you can build up cash up to €700,000 and liquidate company without paying and cgt

2 - Keep profits in company for a few years and the company buys a property for rental income when I retire.

3 - Invest in a pension (i have a dislike/ dont trust pensions and pension funds - giving hard money to someone else to invest in )

4 - Keep paying 50% tax and withdraw all money each year

Any advice opinions welcome

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Mick Tator

John Electrician33 You are not making it easy on yourself.

So if you are an electrician what you are asking is the financial equivalent of the following:

. please give me a quote for this job. I have a building that I need to rewire. The needs of the occupants change over time, so probably the next 30 years. The power loadings can be different, varying over time. There can be power supply problems which need to be curbed by surge protectors to prevent damage to some of the motorised equipment. Demand sometimes is for AC, sometimes needs to be DC. Location and type of power outlets varies, sometimes its single phase other times its different. Some plant might need special earthing and protective shielding from static build-up. Some appliances operate on 50 Hz, others at 60 Hz so they might need regulation.

Please give me a simple answer on this information.How much do I need to spend?

That is what you sound like, and it comes across as totally ...........

Bass Reeves

You are way in over your head. Why did you form a company originally.

First off I would definitely talk to your accountant and to an independent pension advisor.

However there is a number of reasons to and not to leave money in a company set up. While technically you can leave money within the company you can never be guaranteed that similar tax reliefs that are there now for lump sum withdrawal will be there then.

Do you intent to invest the money within the company investing within the company will mean profits are taxed at 12.5% but any increase in property value or share value will be taxed as capital gains and then company taxed

There is also risk. It's a company if at any any stage you ended up with unpaid projects but had to pay for supplies used any profits withheld would have to pay any of these and you could see retained profits compromised.

I would definably consider holding some profits within the company. These could be used to fund college education for you children, however ongoing profit may fund this in the future just as easy

I would definitely use a pension structure to efficiently get money outside the company structure for your longterm future. As well it will be invested. Longterm pension fund returns are 4-6%/anum compounded and that is on all the invested money.

You can withdraw 25%tax free up to 200k and after that at 20%tax to 500k.

After accessing your pension you have to withdraw 4%/year. As you get nearer the time you are going to retire you could well leave money within the company structure. As well remember people in future with longer lifespans people may well opt for reduced workload and income. Income from your work, income withheld within the company and access to pension would maintain your lifestyle without you working 5/6day weeks 46-48weeks per year.

JMR

https://www.boards.ie/discussion/comment/120020115#Comment_120020115

Sorry but that's a completely ridiculous response to the OPs original query.

OP - I hate to respond in a similar fashion to all before me, but you do need to talk to (or Listen to!) your accountant.

His advice to invest in a pension is the most tax efficient method to take funds out of the company and if setup correctly, with adequate funding, will provide for you in your retirement.

Of course there is a cost associated with managing this fund and you should shop around - ask what the 'fund allocation' is - this is the % of the money you hand over that actually gets invested, the rest is the pension companys fee. 95% allocation, means they are taking 5% straight away, so shop around.

Your idea of buying a house with company funds has 2 major issues for me

Buying a house, essentially means you are putting all your faith, not just in one asset class (property) but one individual property, while a pension, if setup correctly will be invested in multiple asset classes. This means the impact to you of any downturn in a certain sector of industry or one individual company are minimised as you are not over-exposed
You can't transfer a house from company ownership to personal ownership without paying tax, as far as I know. Presumably, you have put this idea to your accountant?

Mick Tator

https://www.boards.ie/discussion/comment/120030006#Comment_120030006

If you had taken the care to read the thread instead of regurgitating the advice already given along with your platitudes your remarks might look less foolish. The OP got my advice early on and ignored it just as he ignored advice from others. He is beyond help here, poor chap. And a happy christmas to you too.

Mick.

JMR

https://www.boards.ie/discussion/comment/120030343#Comment_120030343

I did actually read the full thread. My advice is not made invalid by the fact that others before me have provided similar.

Your response, to which I referred, was in no way constructive and I fear was an ill-judged and pompous attempt to show off a somewhat limited knowledge of electrical theory to an OP who divulged that he is an electrician.

Oh, Happy Christmas 😉

Mick Tator

https://www.boards.ie/discussion/comment/120030414#Comment_120030414

You fear it was ill-judged? Oh dear, no, no, don’t be afraid, my post to which you refer was not intended to be a responst to his original question, as I, along with others, had already given (ignored) constructive advice and he answered those comments rather rudely. Mypost was illustrative of how idiotic he was coming across.

As for the advice you propose, it is a plagiarized version of what has been repeatedly said earlier, so it comes across as self-serving and condescending. You (like all of us here) know nothing about the OP, his company’s financial state, his income/outgoings, his age (critical when it comes to funding a pension), family size, etc. His responses show him for what he is sohe deserves to be left to his own devices, or perhaps to rely on experts like you.

The OP is gone away. I'm gone too, goodnight.

Bass Reeves

https://www.boards.ie/discussion/comment/120030523#Comment_120030523

Like much financial advice your is generic. When anyone comes on to sites in boards on categories like this whether it's business or legal the tendancy is to advice '' talk to a solicitor an accountant (financial advisor)''.

Often people/ posters need a LITTLE bit more explanation that bit of advice. Solicitors and Accountants often think everyone else is stupid. The reality is that while both are experts in there area neither have the reality of what happens outside there field.

There are some of us a bit outside there fields who have much more understanding of real life reality. Add to that that technical expertise brings a large degree of mathematical expertise ( accepting that the OP is not showing an exceptional level of the cross transfer of that at present).

However that is not to question the arrogance of some of the advice to seek professional advice so far.

Vestiapx

You either need help or you know what you are doing

If you need help then pay for the best help you can afford.

If you don't need help then why are you asking for it.

The company you formed could be used for tax efficiency but to me it seems you haven't an idea why you bothered .

Sorry not sorry ❤️

Buddy Bubs

John, I'm CIMA qualified accountant and did QFA exams, currently working in a property services company we employ 120 people. It's a different scale to you but principles are the same, just more complex. During my 5 years working in financial services company advising on pensions and investments I came across hundreds of people and don't take this the wrong way, but tradespeople were terrible at taking advice from professionals and would rather take it from colleagues in trades but some of what I heard was bonkers. They tend to ignore tax and only focus on after tax, take home income because that's what's talked about in the world of trades.

Owner of where I work now (family member) is retiring in 2023 and for the last 5 years we've been strategising his exit. But he's been financial planning his entire career. He has a mix of property, pensions in both his and his wife's name and other investments so he is well diversified. In the last few years I've realised I'm not able to be an investment advisor, tax advisor and retirement advisor as well as negotiating the sale of the company all by myself and either is the small accounting firm that have been our auditors for the last 30 years. We have employed a large professional services company for advice. Their fees sting a bit but best money we will ever spend. The amount I've learned this year is staggering. You just need the equivalent of our small accounting firm.

The reason you're getting so many responses saying talk to your accountant is because it's the best advice. You can do what you suggest by leaving money in the company and withdraw it under retirement relief (both you and your wife could potentially do this if its set up right so it can be more than the 700k you heard) but there's so many rules and regulations around these things you could get it so very wrong and get walloped in tax or even penalties. Age limits apply too.

Finance professionals are paid to understand these rules and advise you when and how to gain financially from your business. Don't think of them as salesmen, and if you do, find someone else that you trust is advising you well. Pensions are ways to get money out of the business tax free. You can combine a property with your pension. Again, rules around this.

One bit of free advice though is don't work your ass off just to buy a single property to rent out as that could go horrendously wrong. Non payment of rent, property price crashes, zero help evicting non paying tenants due to property crisis which may or may not be fixed in 20 years. All eggs in one basket is a very appropriate description here.

And if you still do want to do this, nobody can stop you but why not whip the money into an approved pension fund first, miminise your tax liabilities every year then use the tax free pension lump sum (which can be taken as young as 50 if circumstances allow) to purchase the property instead of out of already taxed funds?

You'd laugh at me if i tried to rewire my entire house myself and do your best to advise me to stop and get an electrician or I'll burn the place to the ground. Do it yourself if you want to but you'll miss out on so many tax breaks and planning efficiencies it'll be the financial equivalent of burning the house down. We only leave more profits in the company than we need to and pay tax on it because the company is up for sale and the accounts are where the value is derived from. But a 1 man electrical contractor is unlikely to sell his business and rather liquidate it like you said so whip that money out tax free, the government don't want to be worrying about providing for you in your old age so they've provided incentivised ways for you to do it yourself

Furze99

https://www.boards.ie/discussion/comment/120030812#Comment_120030812

I think Dracula is just taking the p*ss! Doubtless the OP knows well enough cash payments anyway.

But imho based on his initial outline of his circumstances "Say i paid myself €15,000 year and my partner €20,000 year - and there was a profit left of €40,000" - some of the advice here is kinda OTT to put it mildly. That's peanuts in the real world now and the idea of setting up a company with directors and so on, based on these figures is la la land. Maybe our John is being modest and he actually has an annual turnover of €500K or more, in which case off he goes to his accountant/ pension adviser etc etc..........

Gloomtastic!

Ok, I’ve deleted Dracula’s post and posts relating to it. No dodgy advice please people.

The Gloomster!

John Electrician33

I really appreciate all the recent good posts by people who actually gave some advice - some are very good and really appreciated.

The few who just reply "u need to talk to accountant I wouldn't ask for advice how to wire a house' - i find them ridiculous. Why are u on this thread if u dont give some advice - even a little - point someone in the right direction - at least give one little bit of good advice or information.

Im 47 years old, one man band - work hard 7 days a week and want an income for family when i retire - I like idea of owning a house and rental income because i would have a monthly income and hopefully an appreciating asset and something to leave my kids when i die. I might buy two cheap small apartments in west Ireland rather that one house so all eggs not in one basket. I understand there is a risk with property - (market crash, tenant wont pay rent, etc) but there is also risk with investing in pension with stock market crash.

So based on above information and say i had €40,000 at end year after paying myself and wife - what would be best way for me to buy a property valued at say €200,000.

1 - Invest in pension every year - wait a few years and withdraw max tax free lump sum - is it age 50 to 66 i can do this?

2 - Pay 12.5% tax and wait a few years and company buys house ?

3 - Pay 40% personal tax each year and withdraw all money each year and just keep saving until have enough

Thanks in advance

StupidLikeAFox

https://www.boards.ie/discussion/comment/120032588#Comment_120032588

Your answer was given 2 posts above from buddy bubs

Whether you are building a house, wiring a house, getting a plasterer, or planning for your retirement- if you think hiring a professional is expensive, wait until you hire an amateur....

John Electrician33

Stupidlikeafox - another pointless daft answer - nothing to add to the discussion - you must be an amateur as u have no information to add.

Buddy bubs thanks for your detailed answer and thanks to others who answered with advice - its interesting and I'm taking all your advice on board. I would like if someone could answer the question about buying a house is it better through the company or avail pension and withdraw lump sum after few years. And yes I understand there is lots variables

Vinnymcdonnell

No if it is bought through the company you will have to pay full 50% VAT to government back not your 12.5% as the rules are different to company property rentals. You are also liable to tax of non rentals too.

Was always told rental housing property should be bought personally only land and commercial property to be bought by company and also depends on what the company is registered as could cause issues and an audit.

Smartest and best way to get money out of the company and tax free is into a pension, you may not want to do that but it is I’m afraid. End of a year, you have 50k left sitting in the business just transfer that into your pension and have it invested in numerous different funds and not pay any tax. So you put money into your pension, get a lump sum payment on your retirement date (could retire at what ever age you decide), then get a monthly payment on what is set out in your requirements (say you have been told €4,000 a month would be doable)

Mick Tator

OP, how many times do you need to be told that your questions show you have no knowledge of retirement basics so what you are asking/proposing is stupid? It is very late to start thinking about a pension at 47, an age that requires very specific tailored advice. Here is not the place to look.

You’ve suggested buying a property at €200k . If you can find one at that price in Ireland it will be a kip, unfinanceable and unrentable. Buying ‘in the west of Ireland’ is not per your claim ‘spreading my risk’ and you will need to pay a local operator to manage it for you. For an investment property loan you will need a minimum 30% downpayment, you will pay about 6% interest and the term will probably be confined to 15 years. The €40k you mentioned above is peanuts, you need about treble that when considering a property that could be rented.

What part of the repeatedly said ‘You need professional advice’ do you not understand? A chartered tax advisor must firstly have an honours degree, frequently is a qualified accountant also, then must do two further tax exams usually one per year and then keep up to date with CPD. That is why their advice is sought on a highly complex topic that varies according to each individual and legislation that is constantly changing.

CramCycle

The only advice that sounds like it achieves what you want is the one you don't like, and that's plough it into your pension. Now it depends when you want to buy the house and how much you'll have saved. If you go via pension, you won't make up any shortfall with a mortgage at that age, so you need alot saved. Everyone is right about talking to an accountant, as the nuances without huge amounts of personal detail mean that you won't get the right advice but in general, you want as much money out as possible for retirement while paying the least amount of tax, and a pension is the simplest and most effective way to do this.

John Electrician33

Mick Tator your answer is nonsense and no help - please dont reply to my questions as its a waste of valuable time reading your garbage.

Thanks Vinnymcdonnell & Cramcycle for your measured contribution.

Mick Tator

https://www.boards.ie/discussion/comment/120035365#Comment_120035365

That response would be funny were your attitude not so sad for your family. People here know (and several have said) whi is talking garbage. Perhaps you don’t like that I was the first who actually gave you some hard advice/figures and punctured your ravings.

FWIW at your age my pension was nearly fully funded for retirement at age 55. I had a holiday home with no mortgage and a main residence that had a small mortgage because it was tax efficient. But most of that was because I sought the best professional advice early in my career and followed it. (I didn’t bother to stop at 55, I kept going because I love what I’m doing.)

John Electrician33

Mick Tator - congrats - thats good for you - maybe someone can give you a medal. If you got some good advice why dont you share it - one piece of advice - anything ????? Instead of 'go talk to an accountant'

If you have nothing to share please stop posting

Mick Tator

https://www.boards.ie/discussion/comment/120036790#Comment_120036790

Hey Wirebiter, When you have what I have you don’t need /couldn’t be ar$ed with a medal. I’m replying to you just because I’m bored .

At 47, assuming your gross annual income is 100k, full PRSI contribs made and a requirement to have two thirds of your current income when you retire at 65, you need to put away €35 – 40k annually. That is not possible on a your current income, so you need to examine your pension income expectations and not waffle on about buying a property.

At 47 you can annually put 25% of your pre-tax income into a pension fund. That rises to 30% when you are 50. The amounts are capped at about €29k and 30k respectively. Those figures rise as you age. Your company also can make payments on your behalf. But these rules changed (downwards) in the past and are likely to do so again. Nor are the tax efficient contributary amounts sufficient for starting a pension at 47 based on existing earnings of 100k.

Actually, a pension fund (as you envisage it) might not be best for you. There are several other pension-linked investment vehicles you might be advised use. An investment property probably is at the bottom of the list.(I did also give those figures above.)

Additionally, you should first investigate the rules (tax and company law requirements) surrounding payment of a dividend from your company.

Your posts are making you look stupid – If you don’t like my advise, take what others are saying, which is ‘Go talk to a professional’.

StupidLikeAFox

https://www.boards.ie/discussion/comment/120034253#Comment_120034253

You need to understand that you can't ask this sort of question and expect a definitive qanswer

This isn't a "should I use a rawlplug to hang a picture" type question, you would be a very stupid man to trust strangers on the internet with such an important question

John Electrician33

Mick Tator - thanks very much for your answer - something to think about and I have a little more knowledge now.

Stupidlikeafox - your answer is beyond ridiculous - i see you have 7,320 posts - i hope they are not all as idiotic - arent all of these to strangers too.

Im not expecting a definitive answer Im asking for general advice/opinions/experience/do's/dont's etc - and all the good advice is very much appreciated

JustJoe7240

How you fail to realise there is no one specific answer for every case is beyond me.

Advice I want to hear =Good

Advice I don’t want to hear=Bad

dogbert27

You seem to be hung up on the idea of a rental house giving you a monthly income in your retirement.

Is it your plan to save the 200,000 euro first to buy the property or to get a mortgage for it?

Looking at my own accounts for last year I would only be making a return of about 600 euro a month.

I don't see that being enough for my retirement to fund, car fuel, insurance, electricity, food, holidays, etc.

The rent right now for me is clearing most of the monthly mortgage and I have to top up the rest every month.

I have to put my own money in to repairs, maintenance, etc.

As others have said you could get a bad tenant who won't pay or you could be without a tenant for a few months and you have to maintain the house and pay the electricity, property tax, water, etc. on a second property until you find a new tenant.

I don't think a one off rental property, from having one myself, will give you a retirement income that would be needed.

Furze99

John Leccy has his heart set on buying a rental property or two as his 'pension'. Let him at it, lots of other people say they do this or did this in the past. And when they couldn't meet mortgage payments in the Celtic Tiger downturn, looked for write off from the banks and inter alia bailouts at taxpayers expense from the state. On the basis that they invested in property for their 'pension'. Whether or not this strategy has succeeded others more knowledgeable on the area can advise. Doubtless some have managed/ negotiated debt write downs and still own their rentals which have climbed back in value. Whilst others had to sell and take a loss. I suspect John knows some of these through the trades and figures if it works for them, why not him. Maybe it will, maybe it won't but sure he has free choice - let him at it. My only further advice if OP does go this route, don't come back in xyz years and bitterly complain that your 'pension' has been destroyed by market conditions or government policy or whatever. It's a gamble, go in with eyes open and be prepared to lose as well as gain.

John Electrician33

Thanks. I understand and appreciate pension advice.

How many people were burnt with stock market crash 10 years ago - there is a risk with every investment.

Yes i have my heart on buying an apartment or two or a semi D - you can buy a 3 bed semi in Longford for €200k for eg. Whats the most tax efficient way of doing this?

Mick Tator

So here is the sad tale of John.

John has picked Longford (No, I won't say FFS!) and a semi-d at €200k. Let's even assume he has the 30% / €60k deposit required. He borrows 140k and because he’s 47 and it’s an investment property he’s charged 6% and the term is 15 years. That’s repayment of €1,170. pm. Add €130 pm (conservative) for insurance, LPT, contrib to periodic redecoration, etc.) so he’s looking at outgoings of €1,300 pm or €15,600 PA But, hang on, Longford is not the centre of the universe, I won’t go so far as to say it is a hole, but ten years after the Crash a completed, stylish shopping centre on its main street still had not opened. Industry-wise nothing much is happening there, so it still is a struggle to get €1,000 a month in rent. So allow two months vacancy per annum on average to allow for redecoration, repairs, finding new tenants, etc. and his shortfall of income against outgoings is €12,000 against €15,600. Add a bit for advertising and that’s a shortfall of €4 grand annually. But, hey, Ms. ECB Christine Lagarde says interest rates must rise. They will, no idea by how much, but say it’s 2% during that period so add another almost €3k p.a. So John is now in the hole for almost €7 grand annually. Longford rent is incapable of matching those rises. No problem, says John, I can manage that, a bit of extra work, sorted. But little John, and/or his sister says “Dad, why can’t you come to our match/drop me to swimming, bring me to, whatever instead of being away all the time?” Mrs. John too is getting pi$$ed because her holiday is now just one week annually instead of more, because HE always has to go down to THAT house. And John says “I must go because there is a drip, a leak, a row with neighbours, whatever.”

So the pressure, the tears, the marital strife, is not worth it and he decides to sell. He’s been lucky, he never had a tenant that missed the rent. But now the nice tenants, the girls from the bank, tell hime to PFO and they need 12 months to find new lodgings and that their solicitor has told them what to do. While the 12 months is ticking down Sinn Fein, as expected, get into power. They will be unable to deliver on most of their stupid promises but landlords are an easy mark so will be shafted. John is no longer the working class lad (doing the best for his family) he thought he was, he is now a dirty capitalist, and what’s more, he's the worst of the lot, a profiteering landlord trying to evict poor people/ a family. (It doesn’t matter that the tenant is better off than he, he’s a social outcast, a pariahj that deserves to be screwed.) By the tim,e he ges possession the market has tanked, he cannot sell because people have finally realized that the small landlord is a loser and an example on how to lose your shirt.

It doesn’t end well………………..

John Electrician33

Mick Tator - your response made me laugh. It proves two things - one you over exaggeration the negatitive (u never mentioned a nuclear attack or the county being invaded by aliens) - but it also proves you probably have some knowledge but for some reason you and alot others on this board dont want to share it all.

Rent €1,500 month Longford minimum - My family support me as they know im investing for their future

What I want to know is whats the best way to go about saving/buying the house????

1 - Invest yearly in a pension now (avail of tax free contributions) and in 5 years and take lump sum out (is it only 25% i can withdraw?)and hopeful have enough to buy property or have a big deposit

2 - Pay 12.5% and company buys after 5 years.

3 - Pay 40% tax for next 7 or 8 years and I just buy house myself

Whats advantages / disadvantages of all 3. Thats my big question to everyone please

Deeec

https://www.boards.ie/discussion/comment/120039885#Comment_120039885

John the best advice given here is speak to your accountant and a Financial adviser!! You are like a broken record at this stage - you have given very sketchy information so it is really really really hard to advise what is best for both your families and your future as there is so much unknowns. Basic advice is

Yes invest in a pension - maximise the amount you can put in a pension if the business can afford it. This will be the easiest way to gaurantee some income for you in retirement.
Its never really a good idea for a company to buy property due to tax and risk reasons. In fact most companies wouldnt even own the business premises they operate from - the usual structure would be for the director to buy this personally and rent it back to the company. I would not advise you to buy a rental property through your company - dont do this. If the company buys the rental you will still have to pay tax on rents within the company and will pay income tax on any of this income you withdraw from the company. No big gains for you here. There is also tax problems when you go to sell the property - any gain is the companies which the company will pay CGT on, you then pay tax on the remainder if you withdraw it from the company.
Pay tax 40% - The est figures ( for your wages ) you have given us are very low. You and your wife should be at least be increasing your wages to what you can earn at 20% tax rate. Also why not pay tax at 40% on some earnings. Yes you can save this and do what you like with it.

Also I agree with Mick Tator - buying property in Longford would not be clever.