Selling a business, starting a new one and providing regular income.

The sale of any business can be fraught with challenges, forcing owners to address tax issues and long-term income. Some tax allowances are time-critical, and mistakes made at the point of sale can prove costly further down the line. Consequently, you must take professional advice as early as possible to help facilitate an orderly sale and subsequent handling of taxes and personal finances. This is an area in which we have significant experience, able to guide and advise clients in the short, medium and longer term.

Couple on the verge of selling their business, seeking long-term income and funding for an additional company. We were approached by their accountant and charged with creating sufficient tax-free income while utilising tax allowances and tax relief. This is what we did.

Reputation and third-party introductions

Over the years, we have provided bespoke financial advice to a range of different clients across a number of different scenarios, working with third parties advisers. The couple in question, Rebecca and James, were referred to us by their accountant just before receipt of sale proceeds from the sale of their business. Their accountant asked us for advice about what they should do with what was a significant amount of money.

Identifying financial goals

At the outset, it was evident that Rebecca and James had a focused approach to their future finances. They were looking to create a secure income of around £60,000 a year, provide a loan to their second business and use the new company’s long-term cash flow to enhance their retirement income. Before we could even look at creating income to cover their current lifestyle and fund the next business, it was important to address the sale of the company.

Entrepreneur relief

It was about five years ago when we were approached by the couple and their accountant; this was before the reduction of entrepreneur relief (and subsequent name change) to £1 million. This meant that, via their accountant, they could maximise entrepreneur relief under the old regime, thereby protecting the sizeable proceeds received on selling their business. The tax relief was critical, as were the tax-efficient measures we took, eventually allowing them to draw down £60,000 a year tax-free.

Personal Finance

It is essential to identify the financial goals of any client at the earliest opportunity, which enables us to provide bespoke financial advice. Were they looking for capital appreciation? With the proceeds in question, would an enhanced level of security be more appropriate? What was their attitude to inflation? It turns out that they wanted to maintain relative spending power with a tax-efficient income that would support their lifestyle; they weren’t extravagant.

Investing in ISAs

The first thing we did was set up six investment bonds with their children as lives assured, with the idea of signing these over to the children in retirement. It was also essential to look at ISAs, creating a unit trust feeder account from which the maximum £20,000 a year per individual would be transferred. Considering the recent and future reductions, this setup allowed us to maximise their capital gains tax allowance, which is becoming even more critical.

Pension planning

While there was a reluctance to draw money out of the second business, the company was used to fund their pension contributions. This allowed them to maximise pension funding and the associated tax benefits while living off the proceeds from the sale of the original business.

Cash flow planning

Understandably, Rebecca and James took a relatively cautious approach to the proceeds from the sale of the original business. While maximising the tax benefits, these proceeds would fund their everyday living expenses. In addition, ISAs and pension assets will provide additional income in later life. It is important to look at individual cash flow for each income stream and the cumulative effect.

It starts with financial aspirations

It is crucial that we sit down with a new client at the first opportunity to discuss their situation and aspirations in detail. In this instance, their accountant made initial contact, so we already had a little background before meeting the clients. The clients then informed us of their short, medium and long-term targets, allowing us to create a comprehensive financial plan. It was essential to align the income expectations with their investments while appreciating their plans for the new business. Financial advice is an ongoing service, and I meet each client at least once a year to discuss the general markets and any changes in their circumstances. This allows us to revisit and review their goals and objectives and take the necessary action.

It ends with financial freedom

When Rebecca and James approached us, they were clear about what they wanted to achieve. They wanted to maximise proceeds from the sale of their original business, using some funds to finance the next business while also creating a regular income stream of around £60,000 a year.

We utilised several tax allowances and benefits to maximise their short, medium and long-term income. Even though the clients weren’t taking any income from the second business, preferring to reinvest for long-term growth, it was used as a source for their pension contributions. The unit trust feeder saw the clients maximise their ISA allowance each year while also making full use of their capital gains tax allowance. In two or three years, we will have transferred the original unit trust investment into an ISA with all of the related tax benefits.

Rebecca and James can now relax a little, focusing on their second business while receiving sufficient income to fund their lifestyle.

What I offer my clients:

– Gold standard advice based on superb preparation, reliability and quality

– Trustworthy, proactive guidance and the ability to work closely with existing advisers

– An understanding of business and personal finance and utilising tax relief and allowances

– A bespoke approach to investment structured around your specific requirements

– Clear communication and an ability to simplify often complex scenarios

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief generally depends on individual circumstances.

SJP APPROVED 03/08/2023 Pathfinder Private Wealth is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority). The advice provided was given after a full evaluation of Rebecca and James’s specific needs, circumstances and requirements. The solutions provided would not be suitable for most investors and the information provided does not constitute advice.

Although the case study relates to an actual example, where we have helped our clients by providing solutions to their financial problems, the name and figures have been changed for confidentiality purposes.