If you are self employed you should ensure that you are aware of the changes which were recently made to PRSA’s.
We explain in more detail below how this happened but in plain English what it means for you is that if you are a Director of a limited company you can now have the company drop unlimited funds into a PRSA for you (or whoever you favour) to bring you (or them) up to the Standard Fund Threshold of €2m and all of this contribution will be a deductible expense for tax purposes in the year in which it is made.
If you are a sole trader it’s not as straightforward but there may still be opportunities.
How this happened
Finance Act 2022 which was passed on 15 December 2022 removed benefit in kind (BIK) on employer contributions to a PRSA, with effect from 1 January 2023. Prior to this date the imposition of BIK tax was the factor which limited how much an employer could contribute tax effectively. Now that these contributions are BIK exempt this opens up some interesting possibilities for tax effective wealth extraction from a limited company structure and in some cases for mitigating the tax bill of a sole trader.
Under the new rules an employer can make a very substantial contribution to a PRSA established for themselves or say for example, an employee who is a family member (or indeed any employee) and all of that contribution would be a deductible expense for tax purposes in the year in which it is made. The only limits which now exist are the Standard Fund Threshold (€2m) and the ability of the business to fund the contribution.
If you are self-employed and you would like to find out more give us a call on 01 546 1100 for a no obligation discussion. You can reach us by email to info@hfp.ie or use the Contact Us form on this website.
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