How to spend (invest) my £75k
Discussion
Hi all,
I'd like a bit of advice from those of you in the know.
I am employed full time earning a good wage (a couple of times more than national average). I also run a LTD company where I am the only director, which makes slightly more per annum than my full time job.
I dont need the LTD companies money to live on as my salaried job pays the mortgage just fine, as such Ive built up approx £75k in the LTD companies accounts. My question is, what do I do with this money? Ive been speaking with a financial advisor and he's given me a few options.
1) Withdraw the £75k (and similar each year) to pay off the mortgage. Financial advisor says this doesnt make sense as I will pay 40% on the money when I take the dividends.
2) Withdraw the money and invest it personally
2a) I could buy an appreciating classic car such as F430 or lambo Murcielago
2b) I could buy a few watches that will likely appreciate.
2c) I could invest in standard investments that my FA has advised
3) My LTD company could invest the money. This is what my FA advises but I'm not sure it adds up. If my company invests £50k and makes £10k profit, the company would pay 20% tax leaving £8k, I would then pay 40% tax on this leaving just over £5k. It just doesnt seem worth it by the time all the tax has been paid.
In my head option 2 is the best. Yes I will pay 40% tax initially but then I could potentially make this 40% back by having a car. Even modest estimates suggest I could make 20% on some of those higher end cars, which if all else fails will bring me enjoyment and it means I would have recouped 20% of that 40% tax back...
Am I missing something here? Are there any other options?
I'd like a bit of advice from those of you in the know.
I am employed full time earning a good wage (a couple of times more than national average). I also run a LTD company where I am the only director, which makes slightly more per annum than my full time job.
I dont need the LTD companies money to live on as my salaried job pays the mortgage just fine, as such Ive built up approx £75k in the LTD companies accounts. My question is, what do I do with this money? Ive been speaking with a financial advisor and he's given me a few options.
1) Withdraw the £75k (and similar each year) to pay off the mortgage. Financial advisor says this doesnt make sense as I will pay 40% on the money when I take the dividends.
2) Withdraw the money and invest it personally
2a) I could buy an appreciating classic car such as F430 or lambo Murcielago
2b) I could buy a few watches that will likely appreciate.
2c) I could invest in standard investments that my FA has advised
3) My LTD company could invest the money. This is what my FA advises but I'm not sure it adds up. If my company invests £50k and makes £10k profit, the company would pay 20% tax leaving £8k, I would then pay 40% tax on this leaving just over £5k. It just doesnt seem worth it by the time all the tax has been paid.
In my head option 2 is the best. Yes I will pay 40% tax initially but then I could potentially make this 40% back by having a car. Even modest estimates suggest I could make 20% on some of those higher end cars, which if all else fails will bring me enjoyment and it means I would have recouped 20% of that 40% tax back...
Am I missing something here? Are there any other options?
CaptainSlow said:
How old are you? I'd be dumping loads of cash into my SIPP which is corp tax deductible. You have a bit of unwinding to do as I assume you've already paid corp tax.
Thanks for your reply. Im 32. My FA mentioned SIPP's but as I understand it, I will be much older (55 or 60 if I remember correctly) when I see the benefits. I'm not totally averse to planning for the future but I'd rather see the benefits while I'm young. I dont want to work hard all my life to reep the rewards when I might keel over and die, if I even make it that long. That said, I am planning for the future in some ways; I have a BTL property which will fund some of my retirement plus I am a member of one of the best pension schemes on the market and have been for over 10 years), but I'd much rather see returns sooner rather than later.
What do you mean by unwinding? The problem as I see it; I keep building up £75-100k a year in my business but I cant get at it without paying dividend tax, unless I wait until I retire to take the money £40k a year, which I'd rather not do.
Not in a massively dissimilar situation - ltd company owner, circa £30k-£60k p/annum "spare" to invest etc. 30 y/old and not too keen on tying up loads in a pension I can't touch for 35 years in the event other buying opportunities come up sooner, change in circumstances etc.
I got some good insight from this recent ongoing thread;
http://www.pistonheads.com/gassing/topic.asp?h=0&a...
From which I have basically concluded buy to let probably isn't for me.
Personally going to start off with maxing out ISA and continuing to invest in funds/trackers etc - so similar investments to what would be made within a pension but with the added advantage of being able to access the money if needed (ideally not as stock market is a long game etc). I believe the ISA limit goes up to £20k from April which is nice.
Is there any scope to develop/extend/renovate your existing property? This is a good way of a tax free windfall if it is your primary residence. We recently bought at late 500's, "invested" quite a bit on a refurb and big extension, property is now worth £850k. Granted it doesn't feel like money as it isn't realised until the time comes that we sell which we don't intend to, but we've made around £100k profit assuming the market doesn't dive. Which is free from Capital Gains tax etc. That might be a good shout to get a much better return than some of the other options.
I keep meaning to read up on Funding Circle, and Lend Invest (peer to peer bridging loans to property developers, secured against the property, 5-9% return).
Watches is a great shout. Not necessarily a traditional investment, but a non depreciating asset that you can enjoy, with potential to appreciate (stainless daytona, Patek Philippe Nautilus etc etc have gone up in value loads. Even potential to just buy and flip for £5k profit a time).
Similarly didn't fancy the idea of investing through the limited company. Plus it leads to a potential future issue with the main purpose of company activity I believe (if the investment part at some point results in a certain % of overall business activity).
Will follow this thread with interest to see what suggestions come up.
I got some good insight from this recent ongoing thread;
http://www.pistonheads.com/gassing/topic.asp?h=0&a...
From which I have basically concluded buy to let probably isn't for me.
Personally going to start off with maxing out ISA and continuing to invest in funds/trackers etc - so similar investments to what would be made within a pension but with the added advantage of being able to access the money if needed (ideally not as stock market is a long game etc). I believe the ISA limit goes up to £20k from April which is nice.
Is there any scope to develop/extend/renovate your existing property? This is a good way of a tax free windfall if it is your primary residence. We recently bought at late 500's, "invested" quite a bit on a refurb and big extension, property is now worth £850k. Granted it doesn't feel like money as it isn't realised until the time comes that we sell which we don't intend to, but we've made around £100k profit assuming the market doesn't dive. Which is free from Capital Gains tax etc. That might be a good shout to get a much better return than some of the other options.
I keep meaning to read up on Funding Circle, and Lend Invest (peer to peer bridging loans to property developers, secured against the property, 5-9% return).
Watches is a great shout. Not necessarily a traditional investment, but a non depreciating asset that you can enjoy, with potential to appreciate (stainless daytona, Patek Philippe Nautilus etc etc have gone up in value loads. Even potential to just buy and flip for £5k profit a time).
Similarly didn't fancy the idea of investing through the limited company. Plus it leads to a potential future issue with the main purpose of company activity I believe (if the investment part at some point results in a certain % of overall business activity).
Will follow this thread with interest to see what suggestions come up.
Edited by simong800 on Wednesday 30th November 13:59
What are your long term plans for the Ltd Co?
You could let it build up and then shut it down and claim entrepreneurs relief, which means you only pay 10% on the whole amount. That perk might disappear in the future. It also means the money won't be earning anything in the short term.
You could let it build up and then shut it down and claim entrepreneurs relief, which means you only pay 10% on the whole amount. That perk might disappear in the future. It also means the money won't be earning anything in the short term.
Thanks Simon,
Ive already read your thread, and concluded we are in a similar-ish situation.
Unfortunately the house I rent out is a relatively new home (built in 2011) so not much need for redecoration.
My main issue is getting money out of the company without paying huge amounts of tax, and if the company invests the money and makes a profit then its compounding the situation.
I'm not averse to SIPP's (I dont know enough about them at the minute). ISA's are barely worth the paper they are written on at the min aren't they? What profits are forecast/hoped to acheive in your funds/trackers at the minute?
Ive already read your thread, and concluded we are in a similar-ish situation.
Unfortunately the house I rent out is a relatively new home (built in 2011) so not much need for redecoration.
My main issue is getting money out of the company without paying huge amounts of tax, and if the company invests the money and makes a profit then its compounding the situation.
I'm not averse to SIPP's (I dont know enough about them at the minute). ISA's are barely worth the paper they are written on at the min aren't they? What profits are forecast/hoped to acheive in your funds/trackers at the minute?
XJ75 said:
What are your long term plans for the Ltd Co?
You could let it build up and then shut it down and claim entrepreneurs relief, which means you only pay 10% on the whole amount. That perk might disappear in the future. It also means the money won't be earning anything in the short term.
I would like to keep it going for as long as I have the time and inclination. I'd like to think for at least another 10 years (by which time I would have £750k+ in there).You could let it build up and then shut it down and claim entrepreneurs relief, which means you only pay 10% on the whole amount. That perk might disappear in the future. It also means the money won't be earning anything in the short term.
Ive never heard of entrepeneurs tax relief - how does this work? Whats to stop me closing the company in 2 years (when I have circa £250k), and then opening another company up to do the same and continue the process?
JapanRed said:
Thanks Simon,
Ive already read your thread, and concluded we are in a similar-ish situation.
Unfortunately the house I rent out is a relatively new home (built in 2011) so not much need for redecoration.
My main issue is getting money out of the company without paying huge amounts of tax, and if the company invests the money and makes a profit then its compounding the situation.
I'm not averse to SIPP's (I dont know enough about them at the minute). ISA's are barely worth the paper they are written on at the min aren't they? What profits are forecast/hoped to acheive in your funds/trackers at the minute?
Sorry I should have clarified, stocks and shares ISA. So you put your £20k a year into the ISA and then invest in funds/trackers/individuals stocks etc within the wrapper, so it is shielded from tax. Cash ISA as you point out is worthless really, sub 1% etc.Ive already read your thread, and concluded we are in a similar-ish situation.
Unfortunately the house I rent out is a relatively new home (built in 2011) so not much need for redecoration.
My main issue is getting money out of the company without paying huge amounts of tax, and if the company invests the money and makes a profit then its compounding the situation.
I'm not averse to SIPP's (I dont know enough about them at the minute). ISA's are barely worth the paper they are written on at the min aren't they? What profits are forecast/hoped to acheive in your funds/trackers at the minute?
I found the following sites really useful when doing research (I haven't spoken to an IFA, furthest I got is a mate who works for Coutts who helped me out quite a bit);
http://monevator.com
http://www.hl.co.uk
https://www.trustnet.com
It really is a long game, but all my funds chosen are accumulation ones - so instead of taking dividends as income, the dividends are reinvested into buying more units if that makes sense. Compound interest is king, this statistic has always stood out for me;
Neil Woodford joined Invesco Perpetual 25 years ago and has managed the company's High Income fund since then, during which time he has turned a £1,000 investment into about £23,000.
Something like Woodford Equity income is targeting a dividend of 4% p/annum, plus the capital growth;
https://www.trustnet.com/Factsheets/Factsheet.aspx...
JapanRed said:
XJ75 said:
What are your long term plans for the Ltd Co?
You could let it build up and then shut it down and claim entrepreneurs relief, which means you only pay 10% on the whole amount. That perk might disappear in the future. It also means the money won't be earning anything in the short term.
I would like to keep it going for as long as I have the time and inclination. I'd like to think for at least another 10 years (by which time I would have £750k+ in there).You could let it build up and then shut it down and claim entrepreneurs relief, which means you only pay 10% on the whole amount. That perk might disappear in the future. It also means the money won't be earning anything in the short term.
Ive never heard of entrepeneurs tax relief - how does this work? Whats to stop me closing the company in 2 years (when I have circa £250k), and then opening another company up to do the same and continue the process?
You only qualify for entrepreneurs relief if;
"the company’s main activities are in trading (rather than non-trading activities like investment) - or it’s the holding company of a trading group"
JapanRed said:
In my head option 2 is the best. Yes I will pay 40% tax initially but then I could potentially make this 40% back by having a car. Even modest estimates suggest I could make 20% on some of those higher end cars, which if all else fails will bring me enjoyment and it means I would have recouped 20% of that 40% tax back...
I think you're being pretty optimistic if you think there's an easy 20% to be made on this sort of car!Prestige cars have risen recently, but that could change significantly if the economy takes a turn for the worse. Additionally, unless your extremely knowledgable about these cars and can buy at auction, you will be facing massive dealer mark-ups, on-going running costs and large bid-offer spreads when you come to sell.
Buy all means buy a car for fun, but don't pretend it's an investment, and certainly not one with a high (risk-adjusted return).
sidicks said:
I think you're being pretty optimistic if you think there's an easy 20% to be made on this sort of car!
Prestige cars have risen recently, but that could change significantly if the economy takes a turn for the worse. Additionally, unless your extremely knowledgable about these cars and can buy at auction, you will be facing massive dealer mark-ups, on-going running costs and large bid-offer spreads when you come to sell.
Buy all means buy a car for fun, but don't pretend it's an investment, and certainly not one with a high (risk-adjusted return).
You may well be right, I suppose none of us knows for sure.Prestige cars have risen recently, but that could change significantly if the economy takes a turn for the worse. Additionally, unless your extremely knowledgable about these cars and can buy at auction, you will be facing massive dealer mark-ups, on-going running costs and large bid-offer spreads when you come to sell.
Buy all means buy a car for fun, but don't pretend it's an investment, and certainly not one with a high (risk-adjusted return).
ver
Thanks for those links, I'll check them out this evening when I get home.
Cheers
simong800 said:
Sorry I should have clarified, stocks and shares ISA. So you put your £20k a year into the ISA and then invest in funds/trackers/individuals stocks etc within the wrapper, so it is shielded from tax. Cash ISA as you point out is worthless really, sub 1% etc.
I found the following sites really useful when doing research (I haven't spoken to an IFA, furthest I got is a mate who works for Coutts who helped me out quite a bit);
http://monevator.com
http://www.hl.co.uk
https://www.trustnet.com
It really is a long game, but all my funds chosen are accumulation ones - so instead of taking dividends as income, the dividends are reinvested into buying more units if that makes sense. Compound interest is king, this statistic has always stood out for me;
Neil Woodford joined Invesco Perpetual 25 years ago and has managed the company's High Income fund since then, during which time he has turned a £1,000 investment into about £23,000.
Something like Woodford Equity income is targeting a dividend of 4% p/annum, plus the capital growth;
https://www.trustnet.com/Factsheets/Factsheet.aspx...
Thanks Simon. If you haven't seen an IFA, how have you done your investments? I have never invested in anything in the past so the more help/advice the better. Do you use a specific website?I found the following sites really useful when doing research (I haven't spoken to an IFA, furthest I got is a mate who works for Coutts who helped me out quite a bit);
http://monevator.com
http://www.hl.co.uk
https://www.trustnet.com
It really is a long game, but all my funds chosen are accumulation ones - so instead of taking dividends as income, the dividends are reinvested into buying more units if that makes sense. Compound interest is king, this statistic has always stood out for me;
Neil Woodford joined Invesco Perpetual 25 years ago and has managed the company's High Income fund since then, during which time he has turned a £1,000 investment into about £23,000.
Something like Woodford Equity income is targeting a dividend of 4% p/annum, plus the capital growth;
https://www.trustnet.com/Factsheets/Factsheet.aspx...
Thanks for those links, I'll check them out this evening when I get home.
Cheers
JapanRed said:
I would like to keep it going for as long as I have the time and inclination. I'd like to think for at least another 10 years (by which time I would have £750k+ in there).
Ive never heard of entrepeneurs tax relief - how does this work? Whats to stop me closing the company in 2 years (when I have circa £250k), and then opening another company up to do the same and continue the process?
You aren't allowed to start a new business doing the same thing within a given time-frame (think it's 2 or 3 years).Ive never heard of entrepeneurs tax relief - how does this work? Whats to stop me closing the company in 2 years (when I have circa £250k), and then opening another company up to do the same and continue the process?
To get around the principle activity stuff:
Setup another ltd
Trading company loans cash to the new company
This cash is used as deposits for buy to let property or to invest in shares or P2P lending etc
This does not help extracting the cash, but the idea is to grow it in a tax advantaged way for the long term
Then you can pay it into a pension (SSAS/SIPP) tax efficiently when old from the company
Or draw it and take the tax hit.
If you have enough coming in then why draw the cash at all?
Setup another ltd
Trading company loans cash to the new company
This cash is used as deposits for buy to let property or to invest in shares or P2P lending etc
This does not help extracting the cash, but the idea is to grow it in a tax advantaged way for the long term
Then you can pay it into a pension (SSAS/SIPP) tax efficiently when old from the company
Or draw it and take the tax hit.
If you have enough coming in then why draw the cash at all?
Another option (although one I have not done personally yet) is VCTs
http://everyinvestor.co.uk/2013/11/29/tax-benefits...
You get a 30% tax relief against your income tax and dividends are tax free
Higher risk of course
Does anyone here have experience with these?
Am I right in thinking that it OP drew a dividend of 50k for example and then invested all in VCTs, the tax relief would result in it being almost income tax neutral?
http://everyinvestor.co.uk/2013/11/29/tax-benefits...
You get a 30% tax relief against your income tax and dividends are tax free
Higher risk of course
Does anyone here have experience with these?
Am I right in thinking that it OP drew a dividend of 50k for example and then invested all in VCTs, the tax relief would result in it being almost income tax neutral?
simong800 said:
I keep meaning to read up on Funding Circle, and Lend Invest (peer to peer bridging loans to property developers, secured against the property, 5-9% return).
I have been doing a bit in Funding Circle, just testing the water. I only have two grand in there but its getting 6.5%simong800 said:
It really is a long game, but all my funds chosen are accumulation ones - so instead of taking dividends as income, the dividends are reinvested into buying more units if that makes sense. Compound interest is king, this statistic has always stood out for me;
Neil Woodford joined Invesco Perpetual 25 years ago and has managed the company's High Income fund since then, during which time he has turned a £1,000 investment into about £23,000.
So a long game, like a pension then? 25+30 = 55 Neil Woodford joined Invesco Perpetual 25 years ago and has managed the company's High Income fund since then, during which time he has turned a £1,000 investment into about £23,000.
o/p By all means buy a car & watch if you can afford them. Plenty of us did the same. But these are toys, not investments. If they come good, wonderful.
For proper investments, spread your risks and spread your liquidity. Do a few different things and grab the pension wrapper, too, because it's a bargain and trust me you will still be full of life at 55 wishing you'd done exactly what Neil Woodford did but x about 50 or 100.
JapanRed said:
ver
Thanks for those links, I'll check them out this evening when I get home.
Cheers
I literally set up an account with Hargreaves Lansdown online (other trading platforms are available etc) and you can buy stocks, shares, funds etc, put money into your ISA and so on, all via their platform. I believe they're known as a fund supermarket. Have a play about on there, there's a heap of research documents and so on which are useful, and it is a pretty user friendly interface! simong800 said:
Sorry I should have clarified, stocks and shares ISA. So you put your £20k a year into the ISA and then invest in funds/trackers/individuals stocks etc within the wrapper, so it is shielded from tax. Cash ISA as you point out is worthless really, sub 1% etc.
I found the following sites really useful when doing research (I haven't spoken to an IFA, furthest I got is a mate who works for Coutts who helped me out quite a bit);
http://monevator.com
http://www.hl.co.uk
https://www.trustnet.com
It really is a long game, but all my funds chosen are accumulation ones - so instead of taking dividends as income, the dividends are reinvested into buying more units if that makes sense. Compound interest is king, this statistic has always stood out for me;
Neil Woodford joined Invesco Perpetual 25 years ago and has managed the company's High Income fund since then, during which time he has turned a £1,000 investment into about £23,000.
Something like Woodford Equity income is targeting a dividend of 4% p/annum, plus the capital growth;
https://www.trustnet.com/Factsheets/Factsheet.aspx...
Thanks Simon. If you haven't seen an IFA, how have you done your investments? I have never invested in anything in the past so the more help/advice the better. Do you use a specific website?I found the following sites really useful when doing research (I haven't spoken to an IFA, furthest I got is a mate who works for Coutts who helped me out quite a bit);
http://monevator.com
http://www.hl.co.uk
https://www.trustnet.com
It really is a long game, but all my funds chosen are accumulation ones - so instead of taking dividends as income, the dividends are reinvested into buying more units if that makes sense. Compound interest is king, this statistic has always stood out for me;
Neil Woodford joined Invesco Perpetual 25 years ago and has managed the company's High Income fund since then, during which time he has turned a £1,000 investment into about £23,000.
Something like Woodford Equity income is targeting a dividend of 4% p/annum, plus the capital growth;
https://www.trustnet.com/Factsheets/Factsheet.aspx...
Thanks for those links, I'll check them out this evening when I get home.
Cheers
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