Options for large amount of money in ltd company?

[syrio]

I wondered if you would mind giving me some advice on your investment strategy or if you used any particular investment company/manager to build up your 1.7mil account?

Hi acritchlow

I opened a company sharedealing account in 2001 with Selftrade, and invested directly in UK shares. However since 2011 I've switched to a passive investment strategy using cheap globally diversified index tracking ETFs - e.g. VWRL Vanguard All World ETF. I still have some direct shareholdings left, but I'm running these down. Also I've switched the company account from Selftrade to Hargreaves Lansdown. Note that you should not use Hargreaves Lansdown if you are holding large amounts of Funds (OEICs, Unit Trusts), but they are fine if you are holding shares or ETFs.

In hindsight,

I would have been better getting as much money out of the company into a pension. I never liked pensions, but recent changes have made them much more flexible and attractive.

I would have been better off diversifying more and investing internationally, rather than sticking with UK shares, which have had a rather disappointing performance since 2001.

What I would say is

Get as much money out of your limited company as possible each year without paying higher rate tax. Maximise your SIPP contributions. Use your full ISA allowance each year.

Don't bother with picking individual shares, Just go for a cheap globally diversified fund - like Vanguard Lifestrategy, or the VWRL Vanguard All World ETF.

Read either or both of the following books

Smarter Investing by Tim Hale
Investing Demystified by Lars Kroijer (or just read the Lars Kroijers articles on the Monevator website and have a look at his Youtube channel)

And also read the Monevator website.

[cwah]

I have a company account with selftrade, they used to be ok but I wouldn't recommend them now. I don't know what brokers offer company accounts, but I'm sure there are a number. Interactive Investor does, and they might be a good choice.

See Monevator Compare the UK’s cheapest online brokers for a good list of brokers.

The company doesn't pay corporation tax on dividends received. I'm not entirely sure yet what happens when the new dividend tax comes in next year.

The company pays corporation tax on capital gains when investments are sold, there isn't any tax free capital gains allowance, but you do get indexation relief.

If you aren't already making company contributions to your SIPP I would consider that before I made any investments in the company.



You might not be able to get Entrepreneurs Relief if you have a lot of investments.

Can you confirm where it says that company dividend doesn't pay corporation tax on dividend received? I'd like to be certain

Thanks

[rocketjet]

Hi acritchlow

I opened a company sharedealing account in 2001 with Selftrade, and invested directly in UK shares. However since 2011 I've switched to a passive investment strategy using cheap globally diversified index tracking ETFs - e.g. VWRL Vanguard All World ETF. I still have some direct shareholdings left, but I'm running these down. Also I've switched the company account from Selftrade to Hargreaves Lansdown. Note that you should not use Hargreaves Lansdown if you are holding large amounts of Funds (OEICs, Unit Trusts), but they are fine if you are holding shares or ETFs.

In hindsight,

I would have been better getting as much money out of the company into a pension. I never liked pensions, but recent changes have made them much more flexible and attractive.

I would have been better off diversifying more and investing internationally, rather than sticking with UK shares, which have had a rather disappointing performance since 2001.

What I would say is

Get as much money out of your limited company as possible each year without paying higher rate tax. Maximise your SIPP contributions. Use your full ISA allowance each year.

Don't bother with picking individual shares, Just go for a cheap globally diversified fund - like Vanguard Lifestrategy, or the VWRL Vanguard All World ETF.

Read either or both of the following books

Smarter Investing by Tim Hale
Investing Demystified by Lars Kroijer (or just read the Lars Kroijers articles on the Monevator website and have a look at his Youtube channel)

And also read the Monevator website.

Great advice here. I too was in a dilemma what to do with an ever increasing warchest. I invested some into a SIPP, but will now look into the passive trackers via the company.

[syrio]

I thought I'd update this post after seven years. I find it quite useful to refer back to it occasionally and someone else might find it useful, or have some brilliant insight that I haven't considered.

I stopped contracting in 2016 shortly after the original post. I still have the company and am getting the money out via salary, dividends and SIPP contributions. I have about £1.5M remaining in the company due to investments doing well (apart from the last year). I took a couple of years of higher dividends up to £100k and accepted the higher rate tax just to get a little bit more outside the company.

I'll probably stop SIPP contributions in a few years to allow for the fact that future growth might take the SIPP above the lifetime allowance limit (£1.073m).

The tax situation is now a little bit worse now, the dividend tax arrived and has now increased to 8.75% for basic rate taxpayers. Corporation tax was going to increase from 19% to 25% this year for Close Investment Holding Companies, but it now looks like this won't happen as Liz Truss has just become PM. However I don't pay corporation tax at the moment as I make a loss due to salary and SIPP contributions. Indexation relief no longer applies to new capital gains.

I may need to pay corporation tax on capital gains at some point in the future if I have to sell investments to pay myself dividends. However I have carried forward losses (due to salary and SIPPs) to offset against gains for several years.

I'm thinking that at some point in the future, I will end up with all the company money being invested in equities and that I may have enough dividend income in the company to pay out dividends to myself up to the top of the basic rate band. This seems like the most tax efficient strategy I can see at the moment as I would only be paying basic rate dividend tax on my income. I also have the option of increasing or decreasing dividends if I wish.

I'm reasonably happy with the choice of keeping the company running at the moment and taking an income from it. I have enough money outside the company already, so there seems to be little point in closing the company and paying tax just to get more money outside. The only downsides are the little bit of admin and costs involved in running the company. The option of taking extra money out and investing in EISs or VCTs to get tax relief still doesn't attract me.

Regrets, I've had a few, too few to mention, but I will anyway: Not paying into a SIPP earlier, investing in individual UK shares at first before changing to cheap global index funds.

Any thoughts on what I could be doing better? I'd be interested to hear them.

[jamesbrown]

I don't think there's much more you can do, really.

I suppose a more radical option would be to move overseas (to a low tax jurisdiction), but that's a bit drastic - tail wagging the dog - and you'd need to be there for at least 5 years.

Taking dividends long-term is a perfectly viable option.

In terms of an ongoing salary and SIPP contributions, I hope you've taken professional advice on those w/r to being a CIHC and carrying forward losses.

It may be that the 1.25% increment on the dividend tax will be reversed with the corresponding NICs increases, but I wouldn't bank on it (the promise was rather vague in that regard).

[NowPermOutsideUK]

Hello Syrio - can i ask at what age you decided to quit contracting and whether for you 1.7MM is enough?!

Do you ever think to yourself you are missing out on 750 a day when you dont go to work now that you have retired?! That amount is huge dont get me wrong. Also are you still fully invested in equities (which have not done well especially if they have been in sterling assets)

Really curious to hear your adventure so that others can learn from you and use you as a role model for building wealth and hanging up the timesheet pen

Finally : how much do you live on each year - can you manage on 50K and therefore remain lower tax payer ?!

[WTFH]

Hello Syrio - can i ask at what age you decided to quit contracting and whether for you 1.7MM is enough?!

Do you ever think to yourself you are missing out on 750 a day when you dont go to work now that you have retired?! That amount is huge dont get me wrong. Also are you still fully invested in equities (which have not done well especially if they have been in sterling assets)

Really curious to hear your adventure so that others can learn from you and use you as a role model for building wealth and hanging up the timesheet pen

Finally : how much do you live on each year - can you manage on 50K and therefore remain lower tax payer ?!

Boring.

For a change, why don’t you tell us all how much you earn, what you have inherited from your parents, what ways you reduce your taxes.

[syrio]

Hello Syrio - can i ask at what age you decided to quit contracting and whether for you 1.7MM is enough?!

Do you ever think to yourself you are missing out on 750 a day when you dont go to work now that you have retired?! That amount is huge dont get me wrong. Also are you still fully invested in equities (which have not done well especially if they have been in sterling assets)

I decided to stop in my late 40's, although I could have probably gone a few years earlier. When I said £1.7m that was only the amount that I had in the company back in 2015, I also have personal savings outside the company. Even so the £1.7m is probably enough on its own. It seems quite likely that I will never actually withdraw all the money from the company if I restrict withdrawals to the lower rate tax bracket.

I don't worry about not earning money now. If I earned more money now it is unlikely that I would ever spend it. I've always been more of a saver than a spender.

I'm not fully invested in equities, I have roughly 80% global equities / 20% cash, so to some extent the fall in the pound has made things look less bad.

Finally : how much do you live on each year - can you manage on 50K and therefore remain lower tax payer ?!

I can easily manage on £50k. That would be quite extravagant for me. I think I probably have averaged £34k over the last 8 years, and that has included some years where I have spent quite a lot on travelling and interests, and some higher rate dividend tax. I could probably double my spending according to various retirement spending calculators and not have a problem.

[NowPermOutsideUK]

You are living the dream - Everyone including myself have dreams of making as much money as possible contracting / working hard and then retiring early

I think the hard part is realizing you have enough and having the courage to quit - Its hard when even if you have enough you still think to yourself I am missing out on X a day when I started work as a much lower paid grad. So well done for doing the sums and realizing you have bought your freedom

I am trying to put some cash into equities now but each time I have thought about doing that there has always been economic doom forecasted !

[WTFH]

You are living the dream - Everyone including myself have dreams of making as much money as possible contracting / working hard and then retiring early

I think the hard part is realizing you have enough and having the courage to quit - Its hard when even if you have enough you still think to yourself I am missing out on X a day when I started work as a much lower paid grad. So well done for doing the sums and realizing you have bought your freedom

I am trying to put some cash into equities now but each time I have thought about doing that there has always been economic doom forecasted !

No, not everyone has dreams of making as much money as possible.
Not everyone is solely obsessed with money.

You will have a healthier and happier life if you shift your focus onto things that really matter - friends, family, making a positive impact on others. It's not about aiming to be the richest man in the graveyard with no one at your funeral, apart from leeches.