Self Administered Pension Funds
18th December 2008
Self Administered Pension Fund (SAPF) are established under legislation predominantly contained within the Finance Act, 1972, which states the following:
- A limited company may establish a trust fund under the terms of this Act for the benefit of its Proprietary Directors.
- Cash can be transferred from the profit and loss account of the limited company into the Trust Fund, and this transfer can be treated as a trading expense. Thus, corporation tax is reduced by the amount of the transfer.
- Beneficial ownership of the money leaves the limited company and transfers to the benefit of the named Proprietary Director. Despite this fact, there is no tax whatsoever levied on the Proprietary Director.
- The Trust Fund can make virtually any investment it cares to (property, stocks and shares, cash deposits, government or commercial loan stock…etc) and it pays no income tax on income generated and no capital gains tax on gains made.
- The amount of tax-free money that can be invested on an annual basis, and/or removed at the far end, is expressed as a percentage or multiple of the declared salary of the particular Proprietary director.
- The Trust Fund can be accessed, at the discretion of the Proprietary Director, at any time after reaching the age of 50. In any event, the Trust will have to be dissolved when the individual reaches the age of 75 and, therefore, there exists a 25 year window for access.
Quite simply, the terms and conditions of this legislation make it the most effective tax planning tool available to Proprietary directors. Despite these massive tax concessions most Proprietary Directors do not take full advantage of the legislation.
What is the difference between an SSAS and a regular pension product?
If you invest in an insurance company pension product, you must choose from the fund options available under that contract. An SAPF will allow you to avail of all benefits of the pension structure without obligation to invest in specific funds. It is possible to hold individual properties, land, deposits, equities and a variety of other investments directly in your scheme. You may also make significantly greater contributions to your SAPF than with a regular pension.
What are the tax benefits associated with an SAPF?
An SAPF has all the tax benefits of regular pension plans. Contributions enjoy personal tax relief and/or corporation tax relief. Returns are exempt from income tax and capital gains tax. A certain portion – typically 25 per cent of the value of the investment – may be taken tax-free at retirement and the balance of the fund may be invested in a manner which similarly enjoys income tax and capital gains tax exemption subject to certain conditions.
In summary an SAPF is a tax-efficient investment scheme, suitable for both controlling directors and employees, allowing the holders to enjoy the greatest level of control over the direction of their investments. At retirement, Proprietary Directors may choose to purchase an annuity which will guarantee an income for life, or to invest in a personally owned Approved Retirement Fund. Investments within an Approved Retirement Fund continue to enjoy income generated free of income tax and capital appreciation gained free of capital gains tax. Income tax is liable on any amounts drawn down from the fund.
In the event of an untimely death a lump sum of up to 4 times your salary can be paid to your estate tax free. In some cases this may absorb the full value of the fund. An annual income for dependents will be purchased with any surplus monies in the fund.
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