The manager or director’s supplementary pension premiums are
deductible as professional expenses under an IPS, provided that
conditions such as the 80% rule are met.
What is the 80% rule?
In simple terms, this rule holds that the pension premiums for
supplementary pensions are only tax-deductible if the total of your
state and supplementary pensions (expressed as an annual annuity) does
not exceed 80% of your last normal gross annual salary (taking into
account the normal progression of a career).
These premiums do not, however, count as a taxable benefit in kind
for you as a self-employed businessperson. Only the capital that you
receive further down the line will be subject to one-off taxation at
an advantageous rate. This makes an IPS considerably cheaper in terms
of tax than a pay rise or a benefit in kind.
wouldn't half mind making even more tax savings come the end of the year!
If so, why not consider making a service buyback deposit, such as in
your personal pension promise? Because, starting in 2018, you have to
spread your claim for tax relief on prepaid expenses over the full
period that they apply to.
So, if you contract a three-year renting agreement to finance a car,
you could, until 2018, ask for a higher bill and fully deduct that
rental cost at the close of the fiscal year. From 2018, you have to
spread that expense evenly over the term of the renting contract.
The rule also applies to insurance, service contracts and road tax.
But it does not apply to service buybacks, like your individual
pension scheme. Because they concern the past.
That means you can play catch-up on past years of service if, at
that time, you paid in less than the maximum that would have been
allowed under the 80% rule. You can do it in one fell swoop or spread
the catch-up payments over a number of years.
You can also claim full deduction of the premiums from your taxable
profit for that fiscal year. On top of which, of course, you can pay
in your pension promise premiums for the fiscal year then ending.
Tip: as a small company you can not only take advantage of the
lower rate of corporation tax but also create extra space for your
IPP. That way, you pay 20.4% corporation tax on your first 100 000
euros of profit. One condition is that you have to pay yourself a
minimum annual salary of 45 000 euros. Your higher salary therefore
allows you to pay more into your IPP.