Wealth Extraction from Your Business through a Pension Plan

Paul Keogh AIIPM QFA Msc CFP®

A key part of business owners' strategic planning should be to look at options for extracting profits from their business to maximise their post-retirement income, tax efficiency, and succession planning options.

There are three main options for a business owner to extract profits from their Company:

1. Leave profits in the company and extract proceeds through a future sale of the company.

A difficulty with this option is that unforeseen changes in the future business environment may jeopardise the financial security of the business, leading to downward pressure on a sale price, that may not reflect the true value of the business, and from a tax viewpoint:

      • 12.5% Corporation Tax (CT) on profits retained.
      • 20% extra CT for closed companies if profits not distributed within 18 months.
      • 33% Capital Gains Tax (CGT) applies unless a CGT Relief can be obtained.

2. Withdraw profits as salary or dividends.

An obvious way to take profits from the business is to withdraw them as salary or dividends, however from this is unattractive from a tax viewpoint as Income Tax, PRSI and USC may be as high as 52%. Separately, the net proceeds are generally used to meet current living expenses leaving nothing toward retirement funding.

3. Withdraw profits via Employer contribution to Executive Pension Plan.

An extremely popular option is for the business to make employer contributions to an Executive Pension Plan in your name.  Ordinary Annual Contributions can be made for each year from the start of the Plan to retirement. Special Contributions can also be made to fund periods of salaried service which were previously not pensioned.  From a tax viewpoint, the tax efficient features of this option are as follows:

      • 12.5% Employer Corporation Tax Relief on the contribution.
      • No PRSI Liability for the Employer.
      • No Income Tax, PRSI or USC liability for the employee on the employer’s contribution.
      • A maximum tax relieved pension fund of up to €2m may be built up over time to retirement.
      • Profits invested in pension fund grow tax free until retirement.
      • Opportunity to plan for business exit strategy at a preferred retirement date.
      • Tax Free Lump Sum at retirement up to €200,000, with a 20% tax rate on the next €300,000.
      • Retirement income via an Annuity, or an Approved Retirement Fund (ARF) and/or an Approved Minimum Retirement Fund (AMRF).
      • Possibility to pass wealth to spouse and children via ARF /AMRF.

The following table below sets out an example of the tax treatment of €100,000 gross profits taken out of a business under the above three options by a 45-year-old business owner planning to retire in 15 years’ time.


      1. Marginal rate 40% Income Tax, 4% PRSI & 8% USC.
      2. Illustrative 4% pa growth rate, not guaranteed.
      3. 41% Exit Tax applied on personal investments and 25% on corporate investments at end of investments.
      4. 33% CGT rate applies.
      5. 25% of the pension fund can be taken as a tax-free cash sum, with the remaining 75% subject to Income Tax, PRSI & USC.

From this illustration, Option 3. Withdraw profits via Employer contribution to Executive Pension Plan, maximises the opportunity for extracting profits from a business providing optimum post retirement income, tax efficiency and succession planning options.


We would welcome the opportunity to meet with you to identify areas of financial planning that you and your employees may benefit from.


Please contact your Reade Pensions representative to set up an appointment in due course.

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About Paul


Paul is an experienced qualified pensions professional who has more than 40 years’ experience working a broad range of corporate and individual clients both in London & Dublin.

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When you have worked hard to create a reasonable nest egg the last thing you want is to see it lose value in real terms because you are holding it in cash deposits of one form or another.

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