Not everyone wants to sell up and stop. Many self-employed people prefer to ease into retirement, reducing workload while maintaining income.
Options for Phased Retirement
Part-Time Salary/Fee
- Salary remains PAYE/USC/PRSI (often Class S for proprietary directors).
- Deductible expense for company.
Dividends
- Subject to Dividend Withholding Tax (25%).
- Higher-rate taxpayers: effective ~52.1% when Income Tax + PRSI + USC factored.
- Not deductible for company.
Ongoing Pension Funding
- Employer PRSA: up to 100% of emoluments without BIK.
- Employee contributions still subject to age bands + €115k cap.
- Monitor Standard Fund Threshold (€2m).
Worked Examples
Example – Salary vs Dividend (€60,000)
- Dividend: Gross €60k → DWT €15k withheld → net after top-up liability ~€28,740.
- Salary: €60k taxed under PAYE, but company gets corporation tax deduction. Net take-home depends on bands/credits, often more efficient than dividends.
Example – Part-Time with Employer PRSA
- Director reduces salary to €80k.
- Company contributes €80k to PRSA → no BIK, deductible for company.
- Builds pension assets while freeing more time.
Key Takeaway
Slowing down doesn’t mean cutting off income. By combining salary, dividends, and pensions, directors can transition smoothly while optimising tax efficiency.
