The Finance Bill 2025, released last week, contains pivotal updates that will impact business owners, company directors, and senior managers. In particular, a new cap on employer contributions to Personal Retirement Savings Accounts (PRSAs) is set to take effect, marking a significant shift in retirement planning strategy. There is a short window for Business Owners to seize the opportunity before it is changed.
The New Contribution Cap
At present, employers can make unlimited PRSA contributions without them being treated as taxable benefits. However, from January 1, 2025, this will change. Employer PRSA contributions will now be capped at 100% of the employee’s salary, with any amount exceeding this cap treated as a benefit-in-kind (BIK). This means that any contributions above the limit will be taxed as personal income, diminishing the tax efficiency of these payments.
A Narrow Window for Tax-Efficient Contributions
The updated Finance Bill presents a narrow window for business owners to maximise significant tax-advantages under the current, more flexible system. Business owners and directors should seize this opportunity to make larger, tax-deductible contributions to their PRSAs while they still can. After the cap takes effect, substantial contributions may lead to a heavier tax burden, negating the financial benefits for companies and individuals alike.
Implications for Retirement Strategy
For many business owners with fluctuating incomes, the flexibility to make large, irregular contributions is an essential aspect of their retirement planning. The new cap may disrupt this approach, particularly for those who draw modest salaries but wish to boost their pension savings during high-profit years.
Taking Action
Business owners should prioritise a review of their pension funding immediately and assess how these legislative changes might affect their long-term financial goals. Engaging with a financial advisor will help determine the most effective way to capitalise on the remaining weeks of tax-efficient contributions and make adjustments to prepare for 2025. Now is the time to act, as this window of opportunity to maximise PRSA contributions under favourable conditions will soon close. By proactively addressing these changes, business owners can strengthen their retirement strategy and optimise their financial future.
Learn More
Join us on Thursday, 7th November at 1.00PM, as Nick shares actionable steps to reduce your tax burden as a business owner. Learn simple ways to reduce your tax bill before year end and plan your finances effectively for 2025. This webinar is perfect for business owners looking to make informed financial decisions and keep more of their income. Don’t miss this chance to gain expert knowledge from a experienced financial advisor.
