My Business is my pension – Creating Personal Wealth From Your Business
This year we have seen, for the second time in just over a decade, business owners facing significant challenges impacting on the value they have built up in their business. While many business owners believe that their retirement plans are secure by virtue of their owning a successful business; this is only partly true as we know that corporate wealth doesn’t become personal wealth until it is transferred in to their own name.
We know that pension contributions are a good method of extracting funds from a business in a tax efficient manner. It can happen that business owners ignore pension contributions and concentrate instead on availing of “retirement relief”.
So, what are the main differences, and which should you choose?
The Capital Gains Tax (CGT) legislation provides an exemption from CGT where an individual is selling business assets at retirement. The principal features of the relief are:
This works fine where you have a third party who is interested in acquiring your business. If there isn’t a potential purchaser, you may be told you can avail of a company “buy back” of shares but relief is not automatic and must be comply with strict criteria set out by Revenue.
When looking at creating personal wealth from your business there is no reason why you cannot maximise reliefs available for both pension contributions and CGT retirement relief.
Considering all the reliefs available when planning your exit can really maximise the value you can take from your business. As always it is important to seek good tax, legal and pension advice that interact when considering any business exit or retirement planning.
Retirement Planning for Company Directors – Talk to Harvest on 01-2375500 or email firstname.lastname@example.org and we will be delighted to assist.
The information contained herein is based on Harvest Financial Services Limited’s understanding of current Revenue practice as at November 2020 and may be subject to change in the future.