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Investment Breakfast
Eoin BuckleyBComm, ACMA CGMA, QFA, FLIA, SIA, RPA, CFP®, MSc
Clayton Hotel, CorkThursday 23rd February, 2017
Case 1 – Teddy – Employee – Personal Monies
2
o Age 51 – Married to Ann – 4 children
o Active member of ER’s group pension scheme (5% ER & 5% EE)
o € 300k in ex-employers pension scheme & about to transfer to current
employers pension scheme
o € 50k variable rate home mortgage
o € 200k on deposit, unhappy with low interest rates and DIRT at 39%
o Seeking advice between using his deposit account to;
o Buy an investment property
o Investment Bond from bank or life co.
Case 1– Teddy – Employee – Personal Monies
3
o AVCs & Utilise recently issued P60 - 2016
€ 25k backdated against 2016 (€100k salary x 25% (30% - 5% contributions)
€ 25k for 2017, invest now and reclaim in early 2018.
€ 50k for him + € 50k for wife (in a similar earning situation)
€ 100k – 40% income tax relief – Tax free i) inv. growth ii) death pre-retirement
o Child saving plans – to utilise € 3k SGE
€ 24k cheque now for 2017
€ 24k cheque in Jan 2018 and annually thereafter
o Use remaining €50k to repay variable rate mortgage – 4.1% APR = 7% inv. bond return
o Do Not transfer € 300k to current pension scheme – Transfer to Buyout Bond
o €35k p.a. for 9 years (age 60) @ 4% p.a. investment growth
€800,000
Lump Sum
€200,000 Tax Free
(Optimum
Tax Free Cash)
€63,500 to AMRF(No Imputed Drawdown)
€536,500 to ARF with
With 4% Drawdown
= €21,460 in year 1(Subject to PAYE/ PRSI/USC)
Case 1 – Teddy – Pension Fund at Age 60
Case 2 – Tommy – Employer – Corporate Monies
5
o Married to Mary, both are company directors, aged in their mid 40’s
o Very profitable limited company with year end 28th Feb
o € 240k surplus to requirements in ltd. co bank a/c today 23rd Feb
o Do nothing – suffer corporation tax + close co. surcharge
o Take as salary – suffer 55% personal taxes
o Transfer out to their own pension funds
Case 2 – Tommy – Employer - Corporate Monies
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o Utilising Tax Efficient Pension Structure
o Transfer out to pension fund as employer paid contributions to their
existing individual executive pension schemes
o Executive pension V Personal Pension/PRSA – Funding ability
o Employer V Employee contributions – 55% v 40%
o Given their sufficient salary & service - full €240k as in €120k transfer
from ltd co. bank a/c to each pension fund is permitted
o CT tax relief applies, normally spread evenly over a number of years
o By increasing their Feb monthly contribution to €10k each, their annual
OAC is deemed to be 12 months x €10k = €120k each – now this € 240k is
fully allowed as a CT expense in the Co. y/e 28th Feb
€2 million
Lump Sum €440,000
€500,000- €60,000 tax
(12% effective tax
on lump sum)
€63,500 to AMRF(No Imputed Drawdown)
€1.44 million
With 4% Drawdown
= €57,460 in year 1(Subject to PAYE/ PRSI/USC)
Case 2 – Tommy – Employer - Corporate Monies
Case 2 – Executive Pension – Individual Flexibility
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o NRA must be between 60 & 70 – can be amended later
o NRA 70 – Mary
o NRA 60 – Tommy
o Access from age 50, subject to;
o Leave the employment – P45
o Sever all ties with the company
o Stay in employment & wind up pension scheme
o Preserved Benefit
Retirement Planning – 6 Key Benefits
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o Employee Contributions – up to 40% tax relief
o Employer Contributions – up to 55% tax relief
o Tax Free Investment Growth on entire pension fund value
o TFLS - € 200k (with additional €300k @ 20%)
o Death before retirement;
o BOB/PPP/PRSA–fund is paid out tax free (CAT spousal exemption)
o OPS – limited to 4 x salary (+ employee contributions)
o ARF
o 4% mandatory drawdown + discretionary to suit tax band
o Capital Preservation on death
Case 3 – Teddy – Personal Monies
10
o Age 51 – Married to Ann - 4 children
o Active member of ER’s pension scheme (5% ER & 5% EE contribution)
o € 300k in ex employers pension scheme about to transfer to current
scheme
o Small € 50k variable rate mortgage on his PDH
oAdditional € 2m in personal monies
Case 3 – Teddy – Personal Monies
11
Seek professional advice - tax adviser & solicitor input required
o Owning securities directly - CGT & income taxes to apply V exit tax
o Ownership in non-earning spouse to use SRCOP
o Death does not trigger a capital gain
o Making use of losses forward - CGT losses can be complicated
o CAT – thresholds
o 1. € 310,000 2. € 32,500 3. € 16,250
o Family partnerships
o Parent gifts € 310k once off per child plus € 3k p.a. ongoing SGE
o Subject to the legal structure of a partnership agreement with parent(s)
as managing partner, retaining control over the use of the asset
S.73 – Gift Tax Insurance
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o S.73 policies to be utilised where CAT gift threshold limits breached
o Similar Concept as S.72 – life insurance to pay inheritance tax
o S73 savings Insurance policy is used to pay gift tax = exempt from CAT
o Life Assurance Saving Plan for at least 8 years
o ‘Life Insurance’ aspect not required – but often applies to retain Inheritance Tax cover
o Premiums can be monthly/weekly but at least 1 per year
o Premiums can be weighted but max difference between high and low is 100%.
o Early withdrawal allowed in certain circumstances- e.g. critical illness
• How does it work?
o Must use proceeds to pay gift tax within 1 year of encashment
o Proceeds used to pay gift tax = exempt from CAT
S.73 – Gift Tax Insurance
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• Must be expressly taken out for S.73 – BUT No requirement to
actually use the money to pay Gift Tax (Can keep the money for own use)
ALTERNATIVE INVESTMENT VEHICLE?
o Teddy & Ann might isolate €500k of their existing investments
o Move the proceeds to S.73 policy over 8 years
o Leave €500k+ sit there as a paid-up S.73 policy
o Withdrawn sufficient amount in 12 months prior to all future gifts
• Why not more popular?
o Less well known / Bad Investment Experience
(Doesn’t apply to appointment out of Discretionary Trusts)
Summary – Structure & Strategy
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Structureo Pension – Executive V Personal Pension V PRSA
o Child savings plan – deed of assignment to utilise € 3k SGE
o Investments – directly owned securities v investment bonds
o Family partnerships
o S.73 savings plans
Strategyo How you are invested across the 5 asset classes
o Cash – Bonds – Equities – Property – Alternatives
