Investing Through an Irish Holding Company Part IV
Part 4 Investing Through an Irish Holding Company
Private Credit
The tax-efficient income stream most investors overlook.
Disclaimer: This article is intended for general information purposes only and does not constitute tax or investment advice. Tax rules are complex and fact-specific — always consult a qualified tax adviser before making investment decisions through a corporate structure.
Private credit — also called loan notes or direct lending — represents one of the world's fastest-growing asset classes. It involves lending capital directly to borrowers, typically secured against company shares or tangible assets like real estate.
Borrowers range from businesses with steady cash flows to property developers. Interest rates typically span from 7% for senior secured debt at conservative loan-to-value ratios, up to 15% for mezzanine finance — substantially higher than conventional alternatives.
The comparisonPrivate credit vs. the bank: who's really taking the risk?
Banks accept deposits, pay modest interest, then lend that money at higher rates while keeping the margin. Banks lend far more than their deposit base through capital adequacy requirements. Your deposit supports a larger lending book than you might realise, exposing you to institutional operational and systemic risks.
Banks do offer protections: rigorous regulation and EU deposit guarantee schemes covering €100,000 per depositor. For high-net-worth Irish individuals, that threshold provides limited comfort.
Private credit eliminates the intermediary. You lend directly — or through a specialist manager — with security in your favour and interest flowing to you. Properly structured, private credit can be safer than bank deposits, without an unregulated middleman carrying its own leverage or operational risk.
An Important Caution
Many private credit losses occurred when investors faced balance sheet risk from unregulated intermediaries. Never expose yourself to an unregulated financial institution's balance sheet. Structure matters critically.
The tax questionHow is private credit taxed in an Irish holding company?
For most Irish holding companies, interest income from private credit — including bank interest subject to DIRT — faces 25% taxation. However, close companies (covering most owner-managed holding companies) face an additional close company surcharge of up to 15% on undistributed investment income, potentially reaching 40% effective rates.
This significantly impacts returns but remains avoidable.
Mitigating the surcharge
The close company surcharge disappears through dividend distributions to shareholders. A double holding company structure sometimes provides an elegant solution — inserting a second layer to facilitate tax-efficient distributions. This established approach warrants exploration with your adviser if passive investment income matters significantly.
A better routeThe lending company
A genuine opportunity emerges for investors with substantial capital.
Irish tax law permits establishing a company whose trade is lending. If properly structured — with appropriate expertise, processes, and commercial substance — interest income qualifies as trading income, taxable at 12.5% rather than 25–40%. Trading expenses become deductible against trading income, reducing net tax costs further.
Passive route
25–40%
Holding company
Interest income treated as passive investment income, with the close company surcharge applying to anything left undistributed.
Trading route
12.5%
Lending company
Interest income treated as trading income, with trading expenses deductible — provided the badges of trade are genuinely satisfied.
The critical question involves satisfying badges of trade — criteria Revenue uses distinguishing genuine trading from passive investing:
- The subject matter. Is this activity one traders typically engage in?
- The frequency of transactions. Is lending carried out regularly and systematically?
- The motive. Does a clear profit-seeking commercial purpose exist?
- The manner of organisation. Does infrastructure, expertise, and process exist?
- Supplementary work. Is value added beyond simply deploying capital?
A lending company genuinely must operate as a lending business. This means employing or retaining a suitably qualified lending manager with appropriate technical expertise. This isn't merely paperwork — the economics make a compelling case.
The numbersTrading vs. passive
Using a €5 million capital base at 10% interest:
| Passive (Hold Co) | Trading (Lending Co) | |
|---|---|---|
| Capital | €5,000,000 | €5,000,000 |
| Interest income | €500,000 | €500,000 |
| Lending manager cost | — | (€100,000) |
| Taxable profit | €500,000 | €400,000 |
| Tax rate | 25–40% | 12.5% |
| Tax payable | €125,000 – €200,000 | €50,000 |
| Net return | €300,000 – €375,000 | €350,000 |
Illustrative only. Figures assume a €5m capital base deployed at 10% interest and do not account for fees, defaults, or individual circumstances.
The Key Insight
Even accounting for a lending manager's cost, the trading structure delivers superior after-tax outcomes — before considering close company surcharges pushing passive rates toward 40%.
This model scales exceptionally well. At €10m, €20m, or €50m deployed capital, professional management costs become progressively smaller income percentages while tax savings compound dramatically.
Beyond taxSuccession planning
A frequently overlooked lending company advantage involves succession planning.
For investors with €10 million-plus net worth, passing wealth to the next generation efficiently represents one of their most significant challenges. A trading company — unlike passive investment vehicles — opens access to reliefs and planning opportunities unavailable to passive holding structures. Business Relief for Capital Acquisitions Tax can potentially shelter trading company value from inheritance tax at 33%.
This significant, underutilised advantage favours running capital through genuine trading businesses rather than passive hold cos.
The honest conclusionWho should be thinking about this?
If you possess €5 million or more in an Irish holding company and consider private credit, the question isn't simply "what return can I achieve?" — it's "what structure preserves the most?"
A lending company structure won't suit everyone. It requires genuine commercial substance, appropriate professional support, and medium-to-long-term commitment. For the right investor, however, it transforms private credit from moderately tax-efficient income into a highly efficient, scalable, succession-friendly business.
More investors — particularly those with substantial wealth — should discuss this. Increasingly, families with €50 million-plus net worth engage multiple advisers without taking truly holistic wealth perspectives. At that scale, a dedicated in-house lending manager may pay for itself through tax savings alone — essentially funding a family office function delivering value exceeding its cost.
Get In Touch
Quintas Capital advises high-net-worth individuals and families on structuring, investing, and preserving wealth. If you'd like to discuss how a lending company or Irish holding company structure might suit your circumstances, we'd welcome hearing from you.
Kevin Canning is CEO of Quintas Capital, a regulated Irish private markets investment firm. This piece reflects his personal views and does not constitute investment or tax advice.