Reply to: surplus cash investment ideas

[cojak]

And on that note I think it's time to close this thread.

[northernladuk]

Not wanting to be rude I think it's time to go talk to the professionals. You've had lots of random ideas on here, some of which comes with risks you need to know about. Using ideas from a bunch of contractors with that amount of money really isn't a good idea.

Get a number of pros on board and see what they suggest. Remember not to let the tax tail wag the dog though.

[jmann]

I suppose the point is that if you are paying for life insurance (and CI cover) out of personal funds, and you could be paying for it out of company funds, to switch IS extracting cash in a tax efficient way. Admittedly, a relatively small amount of cash compared to your £700K. But the only things you can do tax efficiently that are going to get large sums out are pension, shares/dividends for spouse, or close the company down and use ER (but then you have to stop contracting for a while, and I doubt you are ready to retire yet).

So the first step is to do the big things (shares to spouse, pension), second step is to do the small things (like a Relevant Life Plan), third step is to try to get a better investment return on what can't be extracted efficiently.

As to investing in shares, you said something above about running into trouble with your company being seen as an investment company rather than a trading company. I do not know the rules on this at all, others here probably do. But as long as you keep contracting, and if you give your wife shares so that you can distribute more dividends, your trading income is likely to dwarf your investment income for a long time to come. So from a common-sense perspective, you shouldn't have to worry about this. But the rules don't necessarily match common sense. I would either investigate the rules or pay for expert advice on them (your company can afford to pay a tax / legal expert who is a specialist in this area).

Thank you for the suggestions. It has been very helpful. I have already contacted couple of IFAs but I want to do my own research before meeting them.

I am planning to setup pension account. I am also planning to setup 2nd limited company under my wife's name so I don't think gifting shares from existing company would make any sense. I will need to talk to my accountant and IFA regarding this. I have already setup high interest saving accounts. Can I do anything else to extract surplus cash or earn more from it?

[northernladuk]

I will look into this. What I currently need is advise on extracting the surplus cash in most tax efficient way. Any other ideas?

ADVICE

[WordIsBond]

I will look into this. What I currently need is advise on extracting the surplus cash in most tax efficient way. Any other ideas?

I suppose the point is that if you are paying for life insurance (and CI cover) out of personal funds, and you could be paying for it out of company funds, to switch IS extracting cash in a tax efficient way. Admittedly, a relatively small amount of cash compared to your £700K. But the only things you can do tax efficiently that are going to get large sums out are pension, shares/dividends for spouse, or close the company down and use ER (but then you have to stop contracting for a while, and I doubt you are ready to retire yet).

So the first step is to do the big things (shares to spouse, pension), second step is to do the small things (like a Relevant Life Plan), third step is to try to get a better investment return on what can't be extracted efficiently.

As to investing in shares, you said something above about running into trouble with your company being seen as an investment company rather than a trading company. I do not know the rules on this at all, others here probably do. But as long as you keep contracting, and if you give your wife shares so that you can distribute more dividends, your trading income is likely to dwarf your investment income for a long time to come. So from a common-sense perspective, you shouldn't have to worry about this. But the rules don't necessarily match common sense. I would either investigate the rules or pay for expert advice on them (your company can afford to pay a tax / legal expert who is a specialist in this area).

[jmann]

I will look into this. What I currently need is advise on extracting the surplus cash in most tax efficient way. Any other ideas?

[WordIsBond]

Very good thought about Relevant Life Plans. Interesting discussion about a new wrinkle in Relevant Life Plans, CI cover, in this thread: http://forums.contractoruk.com/accou...ontractor.html. He never got back to us.

Aviva is a big name, though. An insurance business is built on trust. If people can't trust them, they'll die. So if this is challenged by HMRC and they lose, I think they would probably need to cover their clients' tax losses, even if they have protected themselves legally. The alternative would be to lose credibility in the market.

So if you want Critical Illness cover, you can probably do that through your business also, with the new Aviva product.

[northernladuk]

It's a relevant life policy you are looking for. No2, although on the right track was rather vague with his advice. There a couple of threads it's been discussed in very recently. Use the search function as mentioned in the welcome FAQ section.

[jmann]

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

I do have life insurance but I wasn't aware this can be purchased through company. I will look into this. Thank you for pointing this out.

Thanks for all the feedbacks guys. I guess there are lots of things to consider. Hopefully I will learn more things here.

[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.

[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.

[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.

[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.

[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.

[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.