INVESTMENTS
DUE TO CONSISTENTLY LOW INTEREST RATES , THE CASH SAT ON DEPOSIT WON ’ T EVEN BE KEEPING UP WITH INFLATION , NEVER MIND GROWING , AND SO COMPANIES ARE LOSING THE BUYING POWER ON THIS MONEY AS TIME GOES BY .
In addition , ‘ lazy ’ cash in a company ( cash which isn ’ t being used as part of the trade ) could be treated as an excepted asset by HMRC when assessing a shareholder ’ s estate for Inheritance Tax ( IHT ) purposes . Therefore , the surplus cash in the business would not qualify for Business Relief ( BR ), and the shareholders ’ beneficiaries may face an IHT bill on this excepted asset , even if the rest of the business was deemed BR-qualifying .
Due to consistently low interest rates , the cash sat on deposit won ’ t even be keeping up with inflation , never mind growing , and so companies are losing the buying power on this money as time goes by . So , what can business owners do ? There are four main options available to the business owners to potentially reduce or avoid the potential pitfalls mentioned above , assuming they haven ’ t found another business to invest into yet , or other ways to spend the money in the business . These options are :
• move the surplus cash out of the company and use it by investing in their pensions ( if applicable and desired ),
• although they will need to be mindful of the annual pension allowance , which caps the amount they can invest into their pension before they pay tax at £ 40,000 per year
• take extra dividends , suffer the tax , and invest elsewhere in their own ( business owner ’ s ) name
• take an extra dividend , suffer the tax but invest it into a Venture Capital Trust ( VCT ) or Enterprise Investment
• Scheme ( EIS ) and claim income tax relief of up to 30 % of the value of the investment ( often considered as a 4 – 5 year useful exit strategy of getting money out of a business tax-efficiently )
• keep the money within the realms of the business , but have the money trading in another BR-qualifying business , such as a lending business .
The Blackfinch Corporate Management Service was created specifically for the purpose of giving companies the opportunity to use their surplus cash , as a trade , within a lending business . In order to qualify as a trade , the loans must be short term in nature ( less than three years ) with the expectation of them being recycled over time . By utilising this cash in another trade , assuming that they will be a trading and BR-qualifying company at the time of sale or death , then it could potentially help with making their money work harder as the annual target return ( net of Blackfinch ’ s fees ) is a very competitive 4 %– 5 % p . a . and is not linked to the stock market so does not suffer from stock-market volatility . Of course , this return is not guaranteed , but is an expected target return . Blackfinch charges an annual management fee of 0.5 % (+ VAT ) but will only take this after the agreed target return has been achieved . Investing the surplus cash into the Blackfinch Corporate Management Service also helps ensure the cash remains accessible . This is one of the biggest advantages of the service , as the investment can be realised in case a business opportunity does crop up , or indeed if the business does hit troubled times . For the business owners , they can feel reassured that as the surplus cash is now being used for BR-qualifying trades , rather than sitting as idle cash , it should continue to qualify for BR and fall outside of the shareholders ’ taxable estate . Additionally , the cash no longer endangers the business ’ s trading status , as it is now also trading alongside their main business , which will maximise the likelihood of HMRC granting BADR at 10 % when they sell . The Blackfinch Corporate Management Service is an increasingly popular way for business owners to do something positive and valuable with their surplus capital . If you know clients or companies in this situation , please get in contact with Blackfinch . You may also want to share this article with some of your professional connections , especially accountants , who may want to use it as a talking point with their clients .
A bespoke tax-efficient solution for businesses . If you would like to find out more about our CMS solutions and how we can support your work with clients , please call us on 01452 717070 , email enquiries @ blackfinch . com or visit www . blackfinch . com
Important Information Capital at risk . This article is issued by Blackfinch Investments Limited ( Blackfinch ), which is authorised and regulated by the Financial Conduct Authority ( FCA number 153860 ). Registered address : 1350-1360 Montpellier Court , Gloucester Business Park , Gloucester , GL3 4AH . Registered in England and Wales company number 02705948 . This article is for intermediary information only and does not form any offer or invitation to invest . All information correct at May 2022 .
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