James and Ellen are directors of a successful company and have significant personal assets.
They didn’t want to take any more income as they didn’t want to become additional rate tax payers and lose their annual allowance. However, cash was starting to build up in the company and forecasts showed that this was likely to continue. They were also already maximising their pension contributions.
They faced a choice: either take more money from the company, causing a reduction in their annual allowance and thereby forcing them to lower their pension contributions whilst significantly increasing their tax bill, or risk losing the company’s trading status and the ability to control their income and tax, as well as the likelihood of losing Inheritance Tax (IHT) benefits associated with a trading business.
What did we do?
We had a lengthy discussion with James and Ellen about their circumstances, objectives and their willingness to take risk. We talked through the options available and agreed that their main aims were to keep control of their income and tax whilst still funding their pensions.
We then researched the market and found a non-UCIS Business Property Relief (BPR) based investment. We invested £200,000 in this, thereby significantly reducing the cash holdings of their company.
James and Ellen can now continue to fund their pensions whilst benefiting from the Inheritance Tax reliefs available to them. They are also now confident that HMRC will not challenge the trading status of their company allowing them to keep control of their income and tax liabilities.