Reply to: Options for large amount of money in ltd company?

[Maslins]

What a (mostly) good thread, thanks all.
Not in the same position as have mostly extracted what I can each year into SIPP's etc but I might still need to run down a sum in my Ltd. Last time I had a break from work, accountant started rumbling that I was still taking a salary when the co wasn't generating revenue although taking dividends seemed fine.
Is he right ? Surely if I'm on an extended break this could purely be struggle to find work and the company could keep paying salary for years ?

Well, the salary is meant to be paying you for work done, whilst the dividend is rewarding you for your investment. Imagine you were a shareholder and employee of a big corporate instead. If you stopped working, the salary would almost certainly stop, but the dividends wouldn't.

In practice though salaries contractors/freelancers take from their companies are often very low value. Add to that there's some argument that you may be looking for work, dealing with ongoing admin of running the company. Plus you're the boss of the company, so can decide how much you pay people to do what.

Short term, continuing to pay a salary is fine. Longer term, it may not make sense. If work stops coming in, the company's presumably making a loss. You can typically carry those back one year against profits, but beyond that, the company making further new losses may not be able to get any CT back.

[lukemg]

What a (mostly) good thread, thanks all.
Not in the same position as have mostly extracted what I can each year into SIPP's etc but I might still need to run down a sum in my Ltd. Last time I had a break from work, accountant started rumbling that I was still taking a salary when the co wasn't generating revenue although taking dividends seemed fine.
Is he right ? Surely if I'm on an extended break this could purely be struggle to find work and the company could keep paying salary for years ?

[syrio]

I originally had some separate REIT exposure via an ishares ETF (IUKP), but I ditched it a few years ago as I was no longer convinced of the case for it. REITs are listed, so I have exposure to them through my all world tracker funds anyway and I don't see the point in overallocating to them. Performance had also been disappointing, and continues to be disappointing.

The current yields on them do seem high, but that may be more of a warning sign that their borrowing costs are going to increase while we enter a recession and their rental income drops.

[Fred Bloggs]

The advantage I see, is you can do inter-company loans, i.e. very cheap leveraged investment in a Ltd. company wrapper; I assume REITs are personally owned and will be part of your estate?

Personally, I've seen some good returns on capital growth and income via BTL, pure luck I didn't buy further in the recent frenzy, but will definitely keep my eye out given current market conditions. The future issues I see are the potential new laws and the possibility of rent control, that will only distort the market further against renters however, I don't believe the gov can fathom the externalities of such proposals.

I know BTL has been very common here. I have never been interested in BTL.

REITs are usually internally geared portfolios.

REITs are just listed shares and can be held just like any other share you might care to own in any wrapper you choose.

To invest in REIT shares outside your estate you can hold them in a SIPP wrapper where the investment is tax privileged the same way as any other listed share investment. HTH.

[Fred Bloggs]

I've never invested in REITS because I prefer to own the asset with leverage, but I'm not keen on buying any more property now so have been dabbling in the stock market. Can you give us some REIT examples and what their yields are?

REITs themselves are usually leveraged investments themselves. I suggest an individual doesn't really need more leverage. ~30% or more is the normal area of loan to asset value. Sometimes higher. If you google "HL followed by the REIT ticker" below you'll see what you're looking for at Hargreaves Lansdown page for each REIT. You might care to look at RGL, AEWU, SOHO, PHP, IHR for starters. They all operate different business models and there's many more besides.

For me, the opportunity to generate a high, fairly reliable tax free ISA income from diversified, professionally managed property portfolios is too good to miss. Presently often trading at a significant discount to asset value. And no headaches from a BTL portfolio.

[TheGreenBastard]

Personally, I think the BTL boat has not only already sailed it's holed below the water line and maybe sinking. I believe the smarter money now invests in property portfolios listed on the market as REITs. These company's shares can be held in ISAs and therefore provide a hands off tax free income with none of hassle of direct property ownership. Many good quality REITs are trading at 30% discount to the net asset value of the property in the portfolio. The yields are abnormally high as a consequence at the moment. A situation that's not going to last forever. Arguably a terrific SIPP investment at the moment.

The advantage I see, is you can do inter-company loans, i.e. very cheap leveraged investment in a Ltd. company wrapper; I assume REITs are personally owned and will be part of your estate?

Personally, I've seen some good returns on capital growth and income via BTL, pure luck I didn't buy further in the recent frenzy, but will definitely keep my eye out given current market conditions. The future issues I see are the potential new laws and the possibility of rent control, that will only distort the market further against renters however, I don't believe the gov can fathom the externalities of such proposals.

[ChimpMaster]

Personally, I think the BTL boat has not only already sailed it's holed below the water line and maybe sinking. I believe the smarter money now invests in property portfolios listed on the market as REITs. These company's shares can be held in ISAs and therefore provide a hands off tax free income with none of hassle of direct property ownership. Many good quality REITs are trading at 30% discount to the net asset value of the property in the portfolio. The yields are abnormally high as a consequence at the moment. A situation that's not going to last forever. Arguably a terrific SIPP investment at the moment.

I've never invested in REITS because I prefer to own the asset with leverage, but I'm not keen on buying any more property now so have been dabbling in the stock market. Can you give us some REIT examples and what their yields are?

[Fred Bloggs]

The next few months just might a fantastic opportunity to enter the stock market. It looks like the market is finally crashing.

Yes. The bigger the doom, the bigger the opportunity.

[BlasterBates]

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 !

The next few months just might a fantastic opportunity to enter the stock market. It looks like the market is finally crashing.

[Fred Bloggs]

Is nobody doing BTL?

Probably not the best time to buy (might be soon if the market drops) - but I've found it a good issuer of cashflow and tax efficient means of passing on to your progeny.

Personally, I think the BTL boat has not only already sailed it's holed below the water line and maybe sinking. I believe the smarter money now invests in property portfolios listed on the market as REITs. These company's shares can be held in ISAs and therefore provide a hands off tax free income with none of hassle of direct property ownership. Many good quality REITs are trading at 30% discount to the net asset value of the property in the portfolio. The yields are abnormally high as a consequence at the moment. A situation that's not going to last forever. Arguably a terrific SIPP investment at the moment.

[TheGreenBastard]

Is nobody doing BTL?

Probably not the best time to buy (might be soon if the market drops) - but I've found it a good issuer of cashflow and tax efficient means of passing on to your progeny.

[ChimpMaster]

syrio this is a very good, open and frank discussion - thank you for sharing. I used to post here a lot over the years until I quit contracting last year. I had the same questions/thoughts as you did ... but not quite the same amount of funds in my company

There was some rule about how much of the Ltd Co funds you could invest before it would be seen as an investment company and hence not eligible for ER/BADR. I can't recall the %, though I guess it won't matter to you now.

One of the challenges you face is having most of your funds stuck in the company. This might suit you fine for now but it would really bother me because you can't spend all that hard-earned money freely, not unless you extract it and pay tax.

In my case I wanted the money out so that I could (a) enjoy it and (b) invest it outside of a Ltd wrapper. I had long planned the exit and so my money was just sitting in the company earning 0.05% interest, not invested in any way. I did have an inter-company loan I needed to clear up though. Eventually in my mid-40s I liquidated and claimed ER, taking all my £ out and investing the bulk of it into my own house (knocked it down and re-built it, managed the build etc) and into a couple of other properties (the one in zone 1 London is my favourite, I love it there). Some into National Bonds and a small % into shares.

My monthly costs are greater than yours due to family, but I find that all covered by the investments. I still work, just tinker around the periphery of a permanent job where I have enjoyed "quiet quitting" due to a meagre pay rise, but the paid holidays are a boon after many years of contracting. I'll probably resign as soon as they expect me to do any serious amount of work.

NowPermOutsideUK I have never felt that I'm losing out on that [amazing] day rate. It sounds like a lot of money when I talk about it (I was telling my kids today about it) but that time has gone and it elevated us to where we are now. Money is a means to an end and there is no point in earning if you don't have an end in mind. For me it's always been about time and about family - that's where we begin and that's where we will end.

[jamesbrown]

Ruined by you, though. As usual.

[NowPermOutsideUK]

In my experience, those that have "succeeded" financially don't bang on about it or speak about it very much at all, really.

In any case, I don't think it has anything to do with that. It's about your constant trolling of the professional forums with exactly the same questions, as though you're a bit slow or, er, a troll. If the mods are calling you out on it, you can be pretty sure that everyone else has noticed too.

I prefer to call it keeping up with the times- You know like you check the FT or bloomberg to see how market developments change equity or FX prices

For contractors not to ask themselves each day - What am I worth and can I be earning more from my day job and side hussle shows lac of ambition and perseverance

But yes you can call it slow and stupid and small brain - I dont mind. Another thread in professional ruined because discussing money and wealth on a contractor forum is just too shallow.

[jamesbrown]

he got banned as LondonPM for the same stuff. but he came back successfully. the mods must like him.

Yep, LPM1.