View more on these topics

Painless extraction

Anybody who runs their own business should be aware that they are making an investment. Whenever a business owner makes a choice with regard to the use of funds in the business, an investment choice is being made.

Much like any other investment, a business is a means of delivering an income – usually taken through a profit share, dividend or salary, the exact method depending on the structure of the business and the tax and National Insurance implications of the choices appropriate to that business – and capital value.

Most advisers who have the owner-managers of incorporated private businesses as their clients will be involved to an extent, usually in the quarter leading up to the year end, in the process of determining whether and how corporate profits should be removed for the benefit of the owner-manager so as to minimise tax and NI and maximise the benefits received. Only more rarely will there be any continuing consideration of how to build, let alone realise, the capital value of the business.

In considering how a business can deliver capital value to its owners, it is first necessary to consider where that capital value comes from. The first thing to keep in mind is that the company itself can actually constitute the value. Even if the company is not the direct deliverer of capital value, it can certainly provide the means of creating capital value.

The gradual emergence of the wrap platform as a place to hold and aggregate investments is a development that any financial planner should be aware of. Holding products on a wrap platform does not diminish the ability to tax plan with those products.

But to the extent that an owner-manager chooses to develop the value of the business itself rather than extract the funds, what choices exist? Where does the company&#39s wealth or value lie? Perhaps most obviously, at least when looking at its balance sheet, a company&#39s wealth will lie in the value of its assets. Here, I would stress that it is the real rather than tax written-down value that counts. For many businesses, though, especially knowledge-based businesses, the value lies in its intangible assets, in other words, the goodwill, the value of its brand and its intellectual capital. In many cases, this is not stated on the balance sheet.

For those who have aspirations for building and then realising value from their business, this may operate as a deterrent to even thinking about alternatives and, the more committed to this route that business owners are, the more closed-minded they can become about the value of even some diversification.

How often have you heard the retort: “My business is my pension” when attempting to persuade a business owner of the merits of investing in approved pension arrangements or alternative forms of investment to build a fund outside the business to provide a hedge against the business not delivering the capital value that is hoped for?

It does not take a great deal of innovative thinking to realise the risk of relying entirely on one&#39s business as the means of providing future financial security. There are many warnings that can be given to anyone relying entirely on their private business to deliver future financial security. Most, if not all of you, will have some apocryphal story on this very subject. More on this issue next week.


Solus streamlines its fund offering

Brown Shipley&#39s fund management arm Solus has seen a reshuffle of funds and management team. The shake-up has been led by new managing director Tony Hurley and chairman David Rough. Hurley, who is also Brown Shipley&#39s head of private banking, has taken over from Graeme Sinclair, who is leaving the company. Brown Shipley&#39s investment policy […]

Fidelity net retail sales plummet to just £7m

Fidelity&#39s net retail sales reached just £7m in the third quarter, placing it outside the top 10 biggest retail sellers for the first time in almost five years, according to a confidential report. The giant fund firm achieved retail sales of £363m but redemptions hit £356m, leaving it trailing behind rivals such as Threadneedle and […]

Leeds & Holbeck brings back 25-year fix

Leeds & Holbeck Building Society has relaunched a 25-year fixed-rate mortgage. The move follows last week&#39s introduction of the European Mortgage Finance Agency Project which hopes to promote long-term fixed-rate loans. The product is fixed at 5.99 per cent for 25 years but has three-month windows to redeem or transfer the mortgage in full without […]

House prices continue to rise in London – Hometrack

House prices rose by 0.4 per cent in London in November, up from October&#39s rise of 0.3 per cent according to Hometrack. Prices fell in two boroughs, rose in 24 and remained the same in seven. The highest price rises were in Waltham Forest (1.5 per cent), Bromley (1.4 per cent), Enfield (1.4 per cent), […]

Pensions - thumbnail

Auto-enrolment — don’t leave it too late…

With auto-enrolment (AE) well under way for the UK’s largest businesses, over the next three years an additional 800,000 smaller employers (with less than 60 employees) will start their journey to comply with the legislation. AE mandates all eligible employees and their respective employers to make regular pension contributions into a qualifying pension scheme. To learn more about the legislation read our brief Jelf AEase — simple steps to AE compliance guide.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm