surplus cash investment ideas

[Fred Bloggs]

I think the best thing to do would be to wrap the company up and take a couple of years off somewhere nice.

[WordIsBond]

I'd do the following:
1. Act quickly on pension, on the chance that tax relief on pensions is changing at the budget.
A) If you don't have a pension at all, open one and get the £40K max bunged into it before budget day.
B) If you do have a pension, put in the max you can. The annual limit is £40K but if you've had a pension that you weren't contributing to, you can use a carryforward and put a lot more in.
In either case, do the maximum you can. I don't think the rules for employer contributions will change instantly on budget day, but in your case there is no need to risk it. You have the money on hand, get as much into a pension as you can, this is easy tax savings. Depending on what happens with the rules for employer contributions, you might want to do the max every year from here on out, at least until you approach the lifetime limit.
C) Don't worry too much about what the money goes into in the pension fund. The key is to get it into the pension wrapper quickly in case the option to do so is taken way. Put it in a cash account until you figure out where you want to invest it. If you aren't into studying your investments (doesn't sound like it), I'd feed it into an all-shares tracker at say £5K a month, and forget about it for several years.

2. Have a good long think about your risk tolerance. You can put that ratesetter stuff into something that is safe (guaranteed) and gets 1.5%. If you are willing to take a risk to get a higher return, then instead of doing something like ratesetter, how about something like shares? Or buy to let? You can potentially do MUCH better than 3.2%, with perhaps less risk. You can either take the money out via dividends, and invest it yourself, or have your company make the investments.

3. If you think you are likely to take some of the money out using dividends that will put you into the higher rate band, do it before 5 April, since the tax rate will be increasing. Why pay 32.5% tax next year when you could take the money this year and pay 25%?

4. Consider getting a new accountant. If you have an accountant that has been watching this cash pile up over the years, he should have been suggesting 1) pension contributions 2) looking to bet a better interest rate and 3) spreading it around so you weren't as exposed to bank failure. You have been very poorly advised in this -- unless he was making such suggestions and you ignored them, in which case, go look in the mirror and punch that guy in the face.

5. Oh, look in the mirror and punch that guy in the face anyway. It's your business, you should have had your brain engaged. Congratulations on a successful business and good luck with it all, but you really could be even better off if you'd been thinking.

Of course, this is not the advice of an accountant nor of someone who knows your personal situations. But I'm pretty sure #5 is operative.

[jmann]

1. At the moment I don't have any pension but I am planning to setup a pension and contribute £40k. I am planning to setup account with Hargreaves Lansdown and buy few funds.

2. I didn't want to take too much risk which is why I invested £100k into ratesetter. I am concerned that investing money in shares will affect my entrepreneurs' relief tax. This is what I was told by my accountant. I am going to double check this.

3. Maybe this is one of the areas I need to work on. Currently I try to stay within £43k per year. That is one of the reason surplus cash has built up.

4/5. You are right about my accountant. I have been using SJD accountancy for number of years but they do not provide any kind of advice. I am planning to switch to different accountant once end of year accounts are filed.

I have to take some of the blame too. I should have thought about these things years ago. Just had a baby so now I am starting to panic. Trying to figure out whats the best way to extract the built up surplus cash.

I'd do the following:
1. Act quickly on pension, on the chance that tax relief on pensions is changing at the budget.
A) If you don't have a pension at all, open one and get the £40K max bunged into it before budget day.
B) If you do have a pension, put in the max you can. The annual limit is £40K but if you've had a pension that you weren't contributing to, you can use a carryforward and put a lot more in.
In either case, do the maximum you can. I don't think the rules for employer contributions will change instantly on budget day, but in your case there is no need to risk it. You have the money on hand, get as much into a pension as you can, this is easy tax savings. Depending on what happens with the rules for employer contributions, you might want to do the max every year from here on out, at least until you approach the lifetime limit.
C) Don't worry too much about what the money goes into in the pension fund. The key is to get it into the pension wrapper quickly in case the option to do so is taken way. Put it in a cash account until you figure out where you want to invest it. If you aren't into studying your investments (doesn't sound like it), I'd feed it into an all-shares tracker at say £5K a month, and forget about it for several years.

2. Have a good long think about your risk tolerance. You can put that ratesetter stuff into something that is safe (guaranteed) and gets 1.5%. If you are willing to take a risk to get a higher return, then instead of doing something like ratesetter, how about something like shares? Or buy to let? You can potentially do MUCH better than 3.2%, with perhaps less risk. You can either take the money out via dividends, and invest it yourself, or have your company make the investments.

3. If you think you are likely to take some of the money out using dividends that will put you into the higher rate band, do it before 5 April, since the tax rate will be increasing. Why pay 32.5% tax next year when you could take the money this year and pay 25%?

4. Consider getting a new accountant. If you have an accountant that has been watching this cash pile up over the years, he should have been suggesting 1) pension contributions 2) looking to bet a better interest rate and 3) spreading it around so you weren't as exposed to bank failure. You have been very poorly advised in this -- unless he was making such suggestions and you ignored them, in which case, go look in the mirror and punch that guy in the face.

5. Oh, look in the mirror and punch that guy in the face anyway. It's your business, you should have had your brain engaged. Congratulations on a successful business and good luck with it all, but you really could be even better off if you'd been thinking.

Of course, this is not the advice of an accountant nor of someone who knows your personal situations. But I'm pretty sure #5 is operative.

[jmann]

Thanks for the suggestion. I never really thought about commercial properties, so need to look into it. All the IFAs simply suggest pension contributions. I am guessing that's the only way to extract the funds without paying any taxes but I can't access pension for decades. I am only 35 years old now so I got another 20 years to support my family. Maybe that's the reason I don't want to put the money into pension account.

I have made appointment with few more IFAs. I am trying to gather some ideas before the meeting.

Be a bit more out there and think about a commercial property instead of houses?

but that said I'm neither qualified nor comfortable giving investment advice out.

Have you exhausted the ideas given by your IFA and accountant so far?

[WordIsBond]

I have to take some of the blame too. I should have thought about these things years ago.

Easy to overlook stuff when everything is going well, though, isn't it? I

Just had a baby. So, is your better half working? Spouse or partner? You can gift shares to a spouse and extract more via dividends. You'll definitely want to get sound advice on this with the amount of reserve you have in the company, however.

[jmann]

Yes, I didn't even worry about these things. I didn't plan for this amount of surplus cash since I was struggling for years. I am just grateful to be in this situation.

I have assigned my wife as company secretary. Accountant recommended paying gross annual salary of £8,052 to my wife to keep the taxes low. I will need to talk to my accountant regarding gifting shares to my wife. Thanks for the suggestion.

Easy to overlook stuff when everything is going well, though, isn't it? I

Just had a baby. So, is your better half working? Spouse or partner? You can gift shares to a spouse and extract more via dividends. You'll definitely want to get sound advice on this with the amount of reserve you have in the company, however.

[Crossroads]

Firstly well done on building up a tidy sum.

Personally I'm wary of pensions for fear of tying the money up for so long and with Gideon and whoever next forever moving the goalposts. I've got a smallish pension and then 2 properties I let out, however in your position right now I'd be cautious about property but there is definitely still money to be made, it just isn't the no brainer it was IMHO.

I've also got personal and company funds in separate Ratesetter accounts. At 3.2% that must be the monthly rolling product... depending on your plans maybe consider the longer term options for a better rate?

I also have company funds in Aldermore and Cambridge and Counties as mentioned earlier in the thread.

I'm also looking at other options... dabbling with a small amount of VCT's, maxing out personal ISA on shares but like you and others finding a good return with company funds is challenging... and that is before then extracting it from the Ltd.

I've looked but not jumped at:

FundingCircle
Zopa
Other B2B/P2P lending
Residential Property
Shares

Struggling to find something that is worth it to me, so keen to see what else crops up on this thread.

As echoed above, get good advice to ensure you are extracting as much as possible in a tax efficient manner, then IMHO be wary of any IFA who jumps straight at pushing pensions, funds, structured products or anything that IMHO is an easy win for them. I have yet to find an IFA who truly looks at the bigger picture, hopefully YMMV.

[WordIsBond]

Personally I'm wary of pensions for fear of tying the money up for so long and with Gideon and whoever next forever moving the goalposts.

I can understand this but not when talking about £40K out of £700K. If he can't afford to tie up £40K a year in pensions for the next five years, easily, something has gone seriously wrong, and as long as the tax benefits remain for doing so, it seems a no-brainer to me. Tax benefits could go away in a fortnight, of course.

OP, yes, by all means gift shares to your wife. If you trust her with a share of £700K, that is. If you don't trust her, well, her divorce lawyer will probably grab a big chunk of it from you for her anyway.

On the sidebar under "CUK Navigation" there are a bunch of links, the fourth row down is IR35 / S660 / BN66. Read the S660 stuff to get an overview of issues surrounding gifting of shares.

[jmann]

You are right about IFAs. They simply recommend pension and nothing else. I am guessing they are trying to cover themselves against any legal issues.

I already have funds in Aldermore and Ratesetter accounts under the company name. Ratesetter interest rates are pretty good for monthly account. I did look into fundingcircle, zopa and assetz capital, but they tend to have higher default on loans. Its more risker than ratesetter. I might look into opening an account with Cambridge & Counties bank. Interest rate is not bad compare to high street banks.

I could work on topping up my personal ISA account but first I need to extract the funds from company accounts to do this. From next year this is going to be even harder due to higher tax on dividends. I am just fed up that small businesses are paying more taxes than multinational companies.

[No2politics]

1.

Just had a baby so now I am starting to panic. Trying to figure out whats the best way to extract the built up surplus cash.

Have you got life insurance and income protection? These can be purchased as company expense so worth doing.