Invest your money using the right investment vehicle

Don’t wait another day to start planning for your retirement

Imagine yourself at retirement age. You’re preparing to take that round-the-world trip to see those countries you always said you’d see. The kids are set up, the Grandkids are doing well. You can almost taste the gelato…

This isn’t the reality for an increasing amount of retired business owners, who didn’t squirrel away enough money to live the retired life they worked so hard for.

But often, as Financial Advisers, we ‘re faced with clients asking “Well, how should I invest?” and “what should I invest in?”. If you have a profitable business holding significant amounts of cash, you’re probably here because you want to plan for that dream retirement, but you just don’t know where to start on managing your excess funds.

So that we’re all sure of the basics: An ‘investment’ is the process of setting some money aside for the future or buying an asset with the intention of selling it for profit at a later date. An ‘investment vehicle’ is the entity in which you hold that investment. Choosing the best, most tax efficient investment vehicle can be tricky – which is why we’ve written this article! You want to make sure you have the options down. And making the choice between those options really depends on the stage you’re in in your life, and what your need and goals are, both short-term and long-term.

What we all know for certain: you want to pay as little tax as possible.

So what types of investment vehicles are there?

And how tax efficient are they?

Invest in You!

We’re not talking about the fitness-retreat kind of personal investment here, (great as that might be). We’re talking about investing your money in your own name. The simplest way to own assets is in your own name – this might make borrowing money and leaving money in your will easier, but it may cost you more in tax than you’d like to get that money into your own name in the first place.

Your Family

Many people choose to put wealth into a family member’s name. Transferring assets to your spouse doesn’t trigger any tax bills and means that income can be taxed at a lower rate than it might be in your name. Transferring assets to your children though, can be much trickier. Putting assets in the name of a minor will not reduce your income tax bill – as income from the asset is treated as income for the parent. When it comes to gifting assets to adult children, a gift of cash is one of the easiest ways. But it becomes a little more complicated if you’re gifting other assets, such as real estate, where you may trigger a Capital Gains liability.

A limited Company

A limited company is one of the most common ways to run a business. But your limited company can also be used to hold investments. There are advantages and disadvantages of using this option with regards to tax, and you’ll want a good Adviser to help you work out whether the pros outweigh the cons, or vice versa. Those with a trading business often wish to use company funds for investment purposes so that they avoid the tax on taking dividends out – but that could create complications down the line if the business fails or is sold. Instead, you could create a holding company, or sister company and avoid some of these potential issues.

A limited Liability >Partnership (LLP)

In the same vein as a Limited Company, a Limited Liability Partnership is used as means for running a trading business. (Got this far and want to know all the differences between a limited company and an LLP? Read our article for a comparison of the benefits – LINK). As a type of partnership, an LLP requires two or more members. So, when it comes to using this structure for investment, it’s essentially the same as owning assets collectively, with some crucial differences to a standard partnership:

  • There’s only one legal owner of the assets, which can simplify legal matters
  • Partnership agreements can specify different rights to voting, capital and income creating flexibility in ownership.

A pension

Approved UK Pension Schemes are becoming more and more flexible and are still one of the most tax-efficient means of investing. Funds held inside a pension scheme are separate from your estate and can be passed down to beneficiaries upon death, often without any tax to pay. The main disadvantage to having money saved in this way, is that it can’t be accessed until the age of 55, and the range of investments can be restrictive.

A Self-Invested Personal Pension (SIPP), sometimes called a ‘DIY pension’ allows you to make your own investment decisions about how and where your pension pot is invested. Find out all about SIPPS.

An ISA

An Individual Savings Account (ISA) has been a popular choice for years. Why? because they allow you to gain interest on your savings whilst being sheltered from tax (plus also offering quick and easy access to your cash in times of need). An ISA can be used to hold cash or stocks and shares, or both, and you have the freedom to  choose how you want to split it.

A Trust

Trusts are one of oldest types of investment vehicle. An investment trust allows you to pool your money with other investors into a public limited company, that generates profits for its shareholders by investing in other companies shares on the stock market. There are some trusts that also invest in other financial assets, such as commercial property. Why might this be for you?  MP to offer guidance on this.

However much you earn, and however you decide to earn it, just remember that it’ll be your investments that’ll be providing you with an income one day. For some, that might be gelato money, for some it might be allowing your children the life you imagined for them. 

Let’s find out what that means for you in our 30 minute Investment Discovery Session. Don’t wait until you’re retired to save for retirement!