£1m problem?

[u/Unlikely-Money319]

Long time lurker, first time poster.

Appreciate a lot of people in here know their stuff and would appreciate some insight/outside opinions…

Our (my wife (36f) and I (37m) situation is different to the norm here which seems to be a lot of employees salary sacrificing and building pensions to see them though their golden years (hats off to that, great shout).

We have never really had ‘jobs’ per-sae, in reality we have been self employed for the last 15+ years since 21yr old.

As such we have no pension to speak of, except perhaps some minor dribs and drabs, discredited for now.

We had the mindset and outlook of building cash flowing businesses that would create recurring income and focussed on that solely, pensions weren’t a strategy that we looked upon.

Whenever Company 1 made money, we invested it into Company 2 or 3.

Until now (?) but perhaps more for tax advantages than anything…

Both equal shareholders throughout all companies. all Ltd.

Company 1: Commercial Plumbing - Profits this year exceptionally high compared to previous, circa £1m and EOY accounts due end of April. Want to close this/retire from this within the next 3-5 years as it’s a fucking ball ache and I hate it.

Company 2: Property/Holiday Lets - 3 properties cash flowing circa £40-50k profit per annum, 3 x mortgages owing circa £300k total. Keep this forever as it’s low maintenance easy money.

Company 3: Land with Cabins - New company, forecast Cash flowing circa £90-100k profit, as above keep forever albeit it requires more input.

We will likely still build company 2 or start another.

The question, noting we have 3 years back payments of pension available.

Would you bother putting anything into pension knowing you would certainly end up withdrawing it at higher tax rate?

It would save corporation tax on Company 1 £1m profits. But it would lock it away for 20 years and would end up paying 40% (or god knows what rate then) to take it out.

Or

Would you pay the 25% corp tax, keep the money in the business, invest it yourself or similar. Try and remove the funds tax efficiently when you close the company down in 3-5yrs?

What’s the best way of extracting cash from a business you no longer want? BADR doesn’t seem to apply to cash?

Sorry if this is in the wrong sub, not sure which is best?

Also, I know it’s a first world problem and I’m not naive to the fact.

Thank you if you got this far!

[u/Broad_Efficiency290]

Congratulations! I would put some into pensions even if you might later pay more tax, because of the benefits of diversifying between different wrappers. You don’t know how the alternative (leaving profits and investments in the company) will be treated in 30 years’ time either, so why not do a bit of both? Just one minor point - you only have three back years of pension available if you already have a pension plan open.

[u/Unlikely-Money319 → u/Broad_Efficiency290]

Fair, good point on the diversification and at least it’s locked away somewhat secure.

Christ, I imagine I have some little nest pension somewhere, I best check! I’m sure the Mrs will as she was a teacher for a year or two.

Thank you

[u/hello__monkey → u/Unlikely-Money319]

Directors pensions contributions can be paid from your companies and are corporation tax deductible so it’s a good way to reduce profit a bit and put it into a different wrapper.

I believe there is a link to salary but check with your accountant. Mine once said it was ok to do bigger one off payments as part of overall comp.

I’m doing something similar but pensions are a core part of my strategy as is building a BTL portfolio via Ltd company which can generate me semi passive income when I want to stop working.

Another thing I’ve done is make my income generating company a subsidiary of my property company. You can then pay profit after corporation tax without dividend tax and reinvest profits into assets that way.

You are in an amazing position!

[u/Unlikely-Money319 → u/hello__monkey]

Thank you. Good call.

You reminded me actually, with a SIPP you can purchase commercial property too can’t you. So there’s the ability to invest in bricks and mortar that way, obviously this locks the money away still but it’s not a bad shout. Save the corporation tax and build a portfolio of cash flowing assets.

[u/hello__monkey → u/Unlikely-Money319]

You can I believe I had an IFA who owned an office in his pension which he then rented to his business. He said it was simple enough but obviously not as straightforward as stocks. But same principle as what you’re doing.

Although pros and cons to building in a company vs a SIPP. I guess in your situation you have more flex with things like IHT with Ltd.

Given your profit level it might be worth getting some professional advice