How to spend (invest) my £75k

[JapanRed]

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?

[JapanRed]

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.

[JapanRed]

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?

[JapanRed]

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).

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]

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.

[JapanRed]

ver

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?

Thanks for those links, I'll check them out this evening when I get home.

Cheers

[JapanRed]

Zoon said:

When do you run the company if you are at work full time?

In my spare time

[JapanRed]

Thanks for all the replies. Ive spoke with my IFA and he thinks that VCT's and EIS's are too advanced/risky for me (I have never ever invested a penny in the past).

He has mentioned peer-to-peer lending and also building a portfolio of investments to suit my risk level.

Interestingly, he also mentioned my LTD company buying my BTL property. Ive started a new thread for that one so it doesnt become too confusing. See link below;
http://www.pistonheads.com/gassing/topic.asp?h=0&a...

Thanks again

[JapanRed]

drainbrain said:

Why don't you use your limited company's spare funds as a lender / part lender replacing the current loan on your btl?

This sound ideal but how do I do that?

[JapanRed]

drainbrain said:

Send a payment from the ltd to the lender reducing or fully redeeming the loan, then start paying it back to the ltd at whatever rate, method and speed you like.

(there will probably now be a hail of posts telling you why not/all the pitfalls/legal issues etc etc.)

I'm sure that would be classed as a directors loan and at the very least will require an interest charge?

[JapanRed]

Ash170990 said:

I need to get myself in this position. Fair play to you. Personally, id enjoy the money with like you say an F430 or similar, youve worked hard enough to earn the money, and you cant take it with you when youre 6ft under. enjoy it while you can.

This is my thought. Both me and the missus work in the NHS and see death and destrucion on a daily basis. I'm trying to strike a fine balance between saving for the future (retirement and future-childrens security) whilst also enjoying it while we can. Hard to get that balance just right though...

[JapanRed]

PostHeads123 said:

Keep the money to one side ready for when HMRC come a knocking joke (but possible), I don't know your status but if you contracting by looking at the IR35 changes coming into public sector and assuming they will get applied to private sector contracts in 2018, I would be looking at getting my cash out now and taking the hit on the divs or doing an MVL if you still can.

I'm not subcontracting. My accountants are aware of IR35 and I am fine.

[JapanRed]

Thanks guys. Ive abandoned the idea of my company buying the property (see other thread if interested).

So I am left with investments and pensions. Ignoring pensions for the minute, say I want to invest £50k, am I better investing through my company, or drawing dividends and then investing personally?