Cash In Ltd Company - what to do...

[WinkleHoff]

In a few years time I will have around £500k floating around in my company. I draw down a salary and dividend that does not attract any adverse tax implications, and obviously I pay corporation tax on profit as is required. I don't need to pull any more out than what I currently do to live. What I would like to do is put the money in my company to work, so that in effect the company develops a business stream away from its core consulting activities. This will be good as it means I can scale back a bit on my own working hours which rather crazy.

I'm not sure what to do and how to structure things; buy property/low scale development, shares in other companies etc. Any ideas or experiences very welcome.

Thanks all.

[isleofthorns]

have you made pension contributions?

if not for the past few years, you could make a substantial one-off payment to a SIPP or SSAS, getting the tax benefit. This can then borrow additional money from your company and can buy commercial property to let.

[WinkleHoff]

Thanks for this.

I have no pension to speak of, had one years ago but haven't paid in for over 15 years or more. There is hardly anything in it. The only thing we have is our house in terms of equity/Asset. I'll look in to your idea, not something I have ever considered.

[ringram]

Indeed SIPP 100% tax free and you may be able to catch up with the last few years investment.

You can get a fairly easy 5% yield on cash in there with virtually no management overhead.

[Mermaid]

isleofthorns said:

have you made pension contributions?

if not for the past few years, you could make a substantial one-off payment to a SIPP or SSAS, getting the tax benefit. This can then borrow additional money from your company and can buy commercial property to let.

How substantial?

[Ultraviolet]

WinkleHoff said:

In a few years time I will have around £500k floating around in my company. I draw down a salary and dividend that does not attract any adverse tax implications, and obviously I pay corporation tax on profit as is required. I don't need to pull any more out than what I currently do to live. What I would like to do is put the money in my company to work, so that in effect the company develops a business stream away from its core consulting activities. This will be good as it means I can scale back a bit on my own working hours which rather crazy.

I'm not sure what to do and how to structure things; buy property/low scale development, shares in other companies etc. Any ideas or experiences very welcome.

Thanks all.

I have a Hargreaves lansdowne account in the name of my company which gives access to a decent range of funds / equities. Income funds could pay returns back to your company which you could then take as additional income..

[WinkleHoff]

I think that was my initial idea - to find a few options to bring money in that I could draw on as salary rather than grind myself in to the dust in years to come. Might be a number of options in all of this.

[red_slr]

You can use 3 years allowance for your pension which is £40k PA - although if you are a top rate payer it is nearer 60k PA.

[Ginge R]

WinkleHoff said:

I think that was my initial idea - to find a few options to bring money in that I could draw on as salary rather than grind myself in to the dust in years to come. Might be a number of options in all of this.

Think of change like a Harrier transitioning from forward flight to the hover. You have had so much energy propelling you forward, how do you successfully make the change and vector that energy into a different direction? Accumulating wealth is one thing, decumulating it is quite another, take advice you trust.

If you own your own limited company, then you can reduce its corporation tax bill by arranging for it to fund a pension contribution for you. You can invest up to (currently) £40,000 a year, and refer back three years for any relevant unused allowance for that year, so a corporation tax bill *could* be reduced to nothing. As a limited company owner, you can fund a pension personally and benefit from income tax relief on your contributions.

[WinkleHoff]

Thanks, really interesting thought process. Should probably speak to my accountant as well once I have a few ideas lined up.

[anonymous-user]

Some good advice here, though obviously you'll want to seek an accountant and and IFAs input. There are issues to consider if your business transitions into being an investment vehicle. Also, I was told by my accountant that, if you were to close the business, HMRC can sometimes challenge claims of entrepreneurs relief, if they feel that the company has far more cash that it requires for normal trading.

One other thing to bear in mind when you have a cash rich business, is that companies don't get the same protection as individual from the FSCS, so in order to be belt and braces, make sure your cash holdings are well spread amongst institutions.

[Ean218]

ringram said:

Indeed SIPP 100% tax free and you may be able to catch up with the last few years investment.

You can get a fairly easy 5% yield on cash in there with virtually no management overhead.

On cash? How?

[Nigel_O]

carry forward will allow up to £190,000 of pension contributions (£40k for the current year, plus £50k for each of the last three tax years)

However, my limited understanding is that it may be possible for the "employer" to make any amount of contribution (regardless of annual allowance or "employee's" salary) by adopting the "wholly and exclusively" approach - search for BIM46035 on the HMRC website

Doesn't really address the OP's desire to create an alternative business stream though (although it will reduce the high chance of the OP living on bread & water when he retires.... )

Either way, the correct advice is to take advice - IFA and/or accountant

[Ginge R]

I agree with you Nigel, but if said revenue stream was linked to commercial property, then a suitable pension fund could be used to fund it.

[Moulder]

Nigel_O said:

Either way, the correct advice is to take advice - IFA and/or accountant

I am in a similar position to the OP but not overly concerned about an alternate revenue stream. I have a company accountant but also want to consult an IFA, how do you go about choosing a good one?

[Ginge R]

Ask your accountant for a referral? There are also quite a few advisers here, me for instance.. I have often thought it would be a good idea to have a professional register. You can go to the FCA Register and some advisers also pay for a presence on sites such as unbiased.co.uk.

[Nigel_O]

I've been an IFA, worked for several and am now a practice manager for a restricted adviser. I also developed some software 15 years ago, and worked for a couple of large IFA software companies, through which I've worked with hundreds of advisers

one of the lasting impressions I've been left with from all of this is that (as with most walks of life) there are good and bad advisers (and some ugly ones too...)

I would venture to suggest that the best way to find a good adviser is by personal recommendation, either from a (very) satisfied customer, or another profession (accountant, solicitor) Just be aware that not all professional recommendations will be 100% unbiased - many accountancy and law firms will have 'in-house' financial advisers.

Also be aware that (as with accountants and solicitors) its not unusual to find advisers with particular areas of expertise, so you should seek out an adviser with good experience of advising on corporate matters, as well as personal

[Nigel_O]

I also agree with Ginge in that a commercial property, purchased via a SIPP is potentially a good way to self-invest, as the Company then rents the property from the SIPP, which means the rental payments essentially turn into pension contributions

Can be a little inflexible when it comes round to taking pension benefits though....

[dirty boy]

Getting the money out of a company is the most difficult thing without paying higher rates.

Don't be afraid of doing an MVL, but you need to consider what you'll be doing afterwards, as you can't/shouldn't keep opening and closing companies to make use of the entrepreneurs' allowance. Your accountant will advise.

Pensions are a good option, nothing to stop the company buying a property, but you're still left at the end with a property in a company to get out at some point.

Lots to think about!

[Claudia Skies]

^^^^ Stamp Duty is savage if you buy a residential property in a company. 15% tax rate on properties over £500k.

Since you're already avoiding National Insurance by using dividends there's not much to complain about; and you have the opportunity of 10% CGT if you sell the company as an Entrepreneur.

The possibility of big pension contributions should be seriously considered in your situation.