Sister companies in the North and South of Ireland
One of the Four Freedoms of the Single Market in the EU is the free movement of capital around it. However, this is all well and good and presents many opportunities for investors, including pension investors, but what of the incentives for businesses and, perhaps a discussion best had in more depth another time; what of the natural behaviour of businesses?
Certainly whilst patterns have shown that more often than not operators in Northern Ireland and Ireland see each other as competitors for resources, InterTradeIreland work in close collaboration with the Department of Trade & Investment in Belfast and both are keen to remove barriers to cross-border trade and business development.
Something like a quarter of Irish companies and a third of firms from Northern Ireland are involved in cross-border trade. In other words, despite deliberate involvement by government bodies and obvious potential, levels of cross-border trading are currently relatively low. This in turn clearly means there is an abundance of opportunities to be taken advantage of by companies entering the cross-border market.
For those that are well used to joining up the business, tax and pensions dots, the gains to be made by exploring cross-border trade, as significant as they might be, could for many, be equalled by the advantages that come from these two jurisdictions operating different pension regimes.
There are two seemingly separate strands running here; trading and pension investments, so let’s look at how they tie up.
A savvy business, that recognises the opportunities of operating in both Northern Ireland and Ireland (as sister companies) can establish a Small Self Administered Scheme for their company in either Northern Ireland or Ireland, or crucially; both.
Having dual pension schemes that fall under Irish and UK pension regimes makes a lot of sense for both business owners and the members of pension schemes those companies sponsor. Whilst these will usually be the same person wearing different hats, it is important to note that both ‘entities’ gain from this situation.
This might be the right moment to just quickly remind ourselves of what these differences are between the regimes of Ireland and the UK:
• Connected Party Commercial Transactions are permitted under UK Pension Legislation but are not permitted in Ireland. So for example if you want to move your company’s trading premises into your pension scheme in Ireland, you can’t.
• Sponsoring Employer Loans are also permitted under UK Pension Legislation but not allowed in Ireland. So similarly, if you wanted to lend money to your company from the pension scheme it sponsors in Ireland, you can’t.
• Investment in residential property, though much desired, will attract large tax charges in Northern Ireland but so long as the transaction is not between connected parties, it is a tax free investment in Ireland.
• Ireland also boasts unlimited borrowing potential, provided the borrowing is used for commercial or residential property only. Borrowing under prevailing UK pension legislation is restricted to 50% of the net fund value of the whole scheme.
• One of the biggest and perhaps most crucial differences is the total funding permissible in Ireland versus the UK and Northern Ireland. As of 6th April 2014 the current total funding limit of £1.5m, as is available under the UK regime, drops to £1.25m whilst the funding limits in Ireland allow for a pot of €2.3m to be accrued without incurring tax charges.
The EU allows transfers between Ireland and the UK and Northern Ireland so long as the transfers are bona fide and comply with UK QROPS laws. Therefore, returning to one of the opening points, as long as the transactions are dealt with correctly and appropriately, pots of money can be moved from one jurisdiction to another to best suit an investors’ and/or a business’ objectives.
Another element that must be mentioned is the fact that in Ireland, the 0.6% levy currently still applies, whereas no such levy exists in the UK and Northern Ireland. Therefore thanks to the flexibility of cross-border transactions, someone resident in Ireland could be accruing pension funds in Northern Ireland and not be subject to the 0.6% levy on that fund.
So if you join these dots up, what you get is the ability for companies and their Directors to spread their fund investments as well as their trading in a cross-border arrangement that benefits individuals as pension scheme members and as company directors.
