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6 Things Great Financial Planners Do for Entrepreneurs

Posted by Scott Millar, Financial Planner

FInancial-Planning-For-Entrepreneurs

When it comes to your finances, having the right financial planner by your side can pay dividends. Even more so if you’re an entrepreneur because, while you’re busy running your business, you may not have the time or experience to know how best to use the money you’re making.

If you’re serious about generating wealth, we’re serious about ensuring it works as hard as you do. Whether it’s getting ahead of your tax bills with shrewd tax planning, savvy retirement investments or simply investing for tax efficiency and growth, we can work with you to help you achieve your goals.

Here are six things a great financial planner can do for you while you’re running your business.

1. Make your money work while you are

We speak to many people who sit with vast sums of cash on the balance sheet doing nothing useful and earning little to no interest. If you have money sitting on your books which you enjoy looking at but have no immediate plans to spend, you could invest the cash.

A financial planner will guide you through the options of how to invest the money with a medium- to long-term approach. The right plan will ensure you still have cash on hand to cover planned spending and emergencies, but surplus cash can be invested, rather than languishing in low-interest accounts.

2. Implement tax-efficient investments

There are several ways you can save on tax as an entrepreneur or business owner. One way is through Venture Capital Trusts (VCTs). According to government figures, in the tax year 2019/2020, £685 million was invested in VCTs and 19,805 VCT investors claimed Income Tax relief.

VCTs allow individuals to invest in small or early phase businesses that are unquoted or listed on AIM, the London Stock Exchange’s market for growth companies.

Because the government is keen to encourage support for these small, developing businesses they offer generous tax benefits to investors.

3 tax advantages of investing in a VCT

  • Front-end Income Tax relief – 30% Income Tax credit on investments of up to £200,000 each year when you buy shares in a new VCT share offer. You need to have paid at least as much tax as the rebate and must hold the shares for a minimum of five years.
  • Tax-free dividends – There's no Income Tax to pay on dividends from VCT shares.
  • No Capital Gains Tax – You won’t be liable for Capital Gains Tax when you sell your VCT shares.

You should view VCTs as a medium- to long-term investment. And, because VCTs come with increased risk, it’s best if they form part of a well-rounded investment mix.

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3. Have the foresight to introduce and prepare you to benefit from Business Asset Disposal Relief

Your financial planner can help you claim up to £1 million in Capital Gains Tax on the sale of your business through Business Asset Disposal Relief (BADR), previously known as “Entrepreneurs' Relief”.

The relief allows you to apply a reduced rate of 10% Capital Gains Tax on the profits you make when you sell qualifying assets. If eligible, BADR can reduce your tax liability when selling all or part of your business.

The relief is available to individuals, rather than companies, and you need to meet certain requirements to be eligible.

Eligibility highlights

  • Two-year qualifying period: all other criteria must be met for the duration of this period.
  • You have been a sole trader, officer, or employee of the company.
  • You have held 5% or more of the company’s share capital and 5% of voting share capital.
  • You haven’t exceeded your £1 million lifetime limit.

Eligibility rules vary depending on whether you're selling shares in your business or disposing of the business altogether.

A great financial planner will help ensure you're eligible and, if appropriate, help guide you in the right direction to benefit from this relief, possibly years before you'll be ready to make use of it.

4. Take a long view on your retirement plan

As an entrepreneur, you may have made time to arrange a pension scheme for yourself. You may plan to sell your business and use the proceeds to fund your retirement, or build it up and let someone else take over the running of things while you put your feet up or travel the world at your leisure.

However, while this may seem an entirely feasible strategy right now, taking money out of a business might not be as straightforward as you think.

Get the right financial planner by your side early and they'll help devise a bespoke strategy to help ensure you're living your best life now, and when you reach retirement. Tip: the best planning creates financial freedom independently from your company. Any eventual company sale proceeds are then an added (and very welcome) bonus.

Making regular pension contributions is a discipline most financial planners would encourage everyone to adopt but, if you're a business owner, you could consider putting any cash you have tied up in your company into your pension or an investment portfolio.

This approach can maximise tax relief, generate returns over a longer period, and enable your money to work hard, ready for when you need it later in life.

The right financial planner at your side will know you, your goals, and your appetite for risk well enough to understand the makeup of the right investment portfolio for you. They can also devise a long-term investment strategy that keeps working without keeping you up at night.

5. Pay pension contributions from business profits for additional tax relief

If you're making pension contributions and own a limited company, you can get significant tax benefits. That’s because you can treat pension contributions as an allowable business expense and offset them against your company's Corporation Tax bill.

As your pension can also hold commercial property, the right financial planner will discuss flexible ways to save for retirement. One suggestion may be the possibility of setting up a self-invested personal pension (SIPP).

One big advantage of having a SIPP when you're an entrepreneur or business owner is that it's possible to hold business property inside one. You could purchase your own business premises and hold it inside your SIPP or purchase property occupied by a third party.

Business property you can hold in your SIPP includes:

  • Offices
  • Shops
  • Industrial units
  • Land

Holding property in your SIPP has significant tax advantages and, if your property generates income, this too can be rolled back into the SIPP.

There are many ways you can structure a property purchase inside a SIPP. It's even possible to borrow money from your SIPP to purchase some investments. Property is a good example of this as you can use your SIPP to raise a mortgage to part-fund the purchase. If your property was rented out and generating income, that income would be received by the SIPP and can be used to service the mortgage repayments, as well as the cost of running and maintaining the property.

Investments you can hold in your SIPP include:

  • Stocks and shares
  • Collective investments (such as OEICs and unit trusts)
  • Investment trusts
  • Commercial property and land

Not all SIPPs allow you to invest in the full range of possible investment vehicles. Your financial planner can guide you to the right one according to your goals now, while considering any potential future opportunities which may arise.

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6. Run any relevant insurance through your company

Running any business-related insurance through your company is sensible planning at its best.

From stationery and phone bills to uniforms and salaries, every business has to juggle overhead costs. Limited company owners can claim all these business expenses, offsetting profits and your Corporation Tax bill, which helps your business be more tax-efficient.

The same is true of insurance premiums.

A good financial planner will also advise you to set up relevant life or key person insurance, which is important for business continuity and is also an allowable expense for tax purposes.

Many company owners still pay their life cover insurance premiums personally. In order to do this, money is withdrawn from the company, then taxed, and then used to pay the premium. A relevant life policy allows a company owner to pay the insurance premiums direct via their business. The premiums are classed as a tax-deductible expense. It’s a highly tax-efficient way to proceed, and also a great opportunity to review that the sums assured are still appropriate given your current position (higher business valuations, more expensive homes with larger mortgages, new kids and higher living expenses all change the level of a sensible life cover policy).

Get in touch

If you're looking for a financial planner who understands the challenges you face as an entrepreneur, and you want to find out how we can help, please get in touch. Email hello@firstwealth.co.uk or call 020 7467 2700.

This document is Marketing Material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested

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