Invest large sum of money stuck in business or leave

[olivehater]

We have a large sum of money built up in our business ( about 500k). No actual cash in our bank. So live comfortably but not lavishly and still have a moderate mortgage. Can’t just take it all out without being walloped by tax. We were thinking of investing in property via the business but just as we go to that point Covid happened ( with the uncertainty that comes with having a business) then property round us shot up. Now hesitant to buy at what feels like the top of the market. Not sure what else to do now except wait and sit on the money. We can’t do the usual maxing out isa etc as money is in the business. Feels like it is just sitting there out of reach not earning a whole Lot of interest but not sure what else we can do. Any thoughts would be appreciated.

You can invest it as you would as an individual. Yes the company pays tax and CGT, but sat on that much cash is insanity. To be honest you could have made back the tax burden if you’d been in the markets.

What I assume you have also done is maxed out pensions? You can’t reclaim the corp’, but can invest all your current years revenues.

Where has your accountant been in all this? You can’t dissolve a business with that much cash and avoid the tax, it would be taxed if you died (BPR does not apply to cash reserves). This is not great planning.

It is classic tax tail wagging the dog.

We have only made it in the last three years. We are taking salaries and dividends up to 100k each and maxing out pensions.
Slightly risk averse with the markets having been burned before. Have an accountant but seems to think we are mad to take out any more in a year. Corp tax alone makes me want to cry. Didn’t really expect to make this mine this fast esp in Covid. Prior to this had moderate salaries so it’s all new. We wouldn’t dissolve the business. Plan was to go part time/ semi retire and carry on taking salaries after we have stopped working. But now not sure if need to do something more than that.

So if you have put 160 - 200k in a pension (each) you have invested - but I’m splitting hairs, but the point being though it’s not investing it’s the planning around it that went wrong before.

With that kind of income I’d suggest that some financial planning is worthwhile. Your accountant is being led by the tax which may or may not be right for you (accountants have a dreadful habit of only looking backwards, not to what might happen).

If this is the sort of profit you will continue to make take advice. I have a client who came to me with £4M in his business. It is totally ridiculous as it’s a total own goal. In the end we set up a final salary pension scheme (just 4 members of his family) and he’s now settled on a different path.

500k in the bank tells me you need proper advice as a few internet suggestions are never going to address all the nuances of such a situation.

If I was in your situation, I'd buy a house somewhere near to a university and rent it out. Rental yields on student housing are very healthy....

Look at Durham house prices and student rental prices for a case in point....

And then that’s more dividends in the business that they ‘can’t’ get out - the rent are profits in the business, not income for them. You need a non income generating asset that has capital growth.

Food for thought, thanks. We are toying with the idea of a commercial property.

I’d be tempted to buy that via your SIPP. Loan yourself the money from the business as you can gear up by 50%. Yes commercial rates due, but so what! Great wheeze if your business rents it from your pension. Think about a SASS to combine the two.
Do however consider the downside risk of divorce…VERY messy to unpick.

Take advice, this is solid planning territory for a good HNW IFA.

Write off the loan as a contribution. Ooh, now this getting interesting

Agree you would benefit from financial advice. The obvious con of property (commercial or resi) is that it doesn’t give you much flexibility compared to an investment portfolio which you can adjust must faster and draw down on incrementally if you want. As PP have mentioned, a wealth manager could run a diversified portfolio for you keeping the assets within the business for the time being. You’d then benefit from some wider planning to ensure everything is as tax efficient as possible.