Extracting Money from Your Limited Company

Salary: Simple but Tax-Heavy

As a limited company, paying yourself a salary through PAYE is the most straightforward method.

Benefits:

• Regular income, easy to manage.
• Builds up your PRSI record for the State Pension.
• Helps when applying for a mortgage or loan.

Drawbacks:

• Salary is taxed at your marginal income tax rate (up to 40%), plus USC and PRSI.
• Can leave you paying over 50% in combined taxes.

In practice, many directors keep their salary modest, just enough to use personal allowances and secure PRSI contributions.

Dividends: Flexible but Still Taxed

As a shareholder, you can also take dividends.

Benefits:

• Flexible, declare them only when there are surplus profits.
• No PRSI on dividends (only income tax + USC).
• Works well combined with a low salary.

Drawbacks:

• Dividends are still taxed at your marginal rate (up to 40% + USC).
• You must have retained profits to issue dividends.

While useful, dividends alone don’t solve the tax efficiency challenge.

Pensions: The Most Tax-Efficient Extraction Tool

Here’s where pensions shine. Instead of paying yourself a higher salary or dividends (and losing much of it to tax), your company can contribute directly into your pension.

Why this is powerful:

• Contributions are deductible business expenses, reducing corporation tax.
• No Benefit-in-Kind charges.
• No income tax, PRSI, or USC at the point of contribution.
• Money grows tax-free within the pension.
• You’re effectively moving company profits into your own name, tax efficiently.

When you retire, you can draw down your pension strategically, often at a much lower tax rate than you’d face today.

Other Tax-Efficient Options

While pensions are often the most tax-efficient way to extract wealth, there are other smart approaches you can use alongside them. These strategies won’t always replace pensions, but they can complement them and create flexibility for your income and long-term planning.

Hiring Family Members

Employing family members in your business can be a legitimate and tax-efficient way of transferring wealth from your company to your household.

How it works:

• You can employ your spouse, partner, or even teenage/college-age children in genuine roles, such as admin, bookkeeping, social media management, or marketing support.
• Their salary counts as a deductible business expense, reducing your company’s taxable profits.
• If their earnings are below the standard tax credits and thresholds, they may pay little to no income tax.

Benefits:

• Keeps wealth within the family rather than paying it all in tax.
• Provides work experience and PRSI contributions for your children or spouse.
• Allows you to split income across family members to reduce the household’s overall tax bill.

Important:

• The work must be genuine, and the pay must be reasonable for the tasks performed.
• Proper payroll records must be maintained to remain compliant with Revenue.