Savings & Investments
Investment Bond – Lump Sums
Some reason to choose an Investment Bond:
- It’s a long-term investment option for your lump sums.
- It’s a great option when looking for a way potential grow your money.
- You can change the level of investment risk if circumstances change.
- You have the flexibility to take an income or encashment from the bond if needed.
Corporate Investment Bond
What do we do with our company’s money?
We see more companies exploring alternative investment opportunities – in particular investigating how Corporate Investment Bonds and Savings Plans can be a solution. Holding your company’s money in cash or on deposit may make sense for maintaining short-term cash-flow but is this the most appropriate use of the surplus capital?
Over the last number of years holding too much cash has been costly. Investing with a Life Company can be more efficient! Traditionally companies have invested directly in deposit accounts or through direct equity/share purchase, it can bring unwanted tax complications.
An alternative route is to invest surplus capital in a Life Company Investment Bond or Savings Plan. For ‘Close Companies’* this can potentially be more efficient for a number of reasons:
- Company investments only have to pay an exit tax of 25% and are not subject to the potential 33% tax paid on any gains made on direct investment in equity or property. There is no further tax liability.
- The Close Company surcharge of 20% for undistributed income does not apply to funds held within a life insurance investment bond or savings plan
- Reduced tax and payment administration – It is the Life Insurance company that is responsible for the withholding and payment of any tax and not the Close Company itself.
- There is the potential to defer payment of tax until the 8th Anniversary of policy. While reducing the tax burden, this also has the added advantage of compounding growth over time compared to where income may be paid annually on direct investments.
- A life company Investment Bond or Savings Plan will typically offer a wide range of fund options offering different levels of exposure to Commercial Property, Equities, Bonds etc. The choice may allow the company to diversify its investment options depending on the risk profile of the company (or its directors).
- Please note that a government insurance levy of 1% currently applies to all contributions to life assurance products.
*What is a ‘Close Company’?:
- A Close Company is one that is controlled by five or fewer participators or is controlled by any number of participators who are directors.
- The definition of a Close Company includes a company where, on distribution of its full income, more than 50% goes to five or fewer participators or participators who are directors.
- A participator is a person having an interest in the income or capital of the company.
- Most SME companies in Ireland are Close Companies.
Some reasons to choose a savings plan
- You can vary the savings amount.
- You have the option to make a lump-sum top ups/contributions.
- You have the potential to grow your savings through investment choices.
Education Saving Plans
A lot of parents underestimate the savings needed to cover the costs of providing for your children’s future education and to avoid the need to borrow to meet these costs. Starting to save early really helps! The annual student contribution for university, is currently €3,000 (July 2020). This has been steadily increasing over the years. If your child were to go on to do a four-year course at university, you would be expected to hand over €12,000, and that’s excluding accommodation, transport, food and book costs!
Of course, you might want to use the saving to give them a head start with buying their first home, car or helping them set up their own business. By taking the time now to plan for these future expenses, you can become the architect of their future!
The Tax benefits of Savings Plan - Small Gifts Exemption
Capital Acquisitions Tax incorporates a Gift Tax and an Inheritance Tax.
- Gift Tax may apply when a person receives a gift from another.
- Inheritance Tax may apply when a person receives an inheritance following the death of another.
Gifts and inheritances up to a certain value or threshold can be taken without incurring any liability. The thresholds depend on the relationship between the donor and the recipient, and the total value of all gifts and inheritances received from all donors within that donor group.
The current thresholds for each relationship are as follows:
In any year, the first €3,000 is not taxed and does not reduce the threshold. This is referred to as the Small Gifts Exemption. So, two parents can gift €6,000 to any one of their children. A Savings Plan set up in the correct way is a means of availing of this Small Gifts exemption and investing it in a savings plan.