July 2, 2025 • 23 mins
Insights from an Expert Accountant
In this episode of Business Buying Strategies, Jonathan introduces Jeff, an accountant he has worked with for nearly 13 years.
Jeff shares invaluable tax-efficient strategies to help business owners maximise their savings and minimise tax liabilities. Key topics discussed include the benefits of family investment companies, approaches for handling inheritance tax, rewarding key employees using partnerships, using service companies owned by family members, and leveraging pensions for tax benefits.
Jeff explains how to structure deals in a way that optimises financial outcomes without risking personal cash, providing practical insights for business owners aiming for smarter financial management.
Key moments
00:47 Meet Jeff: The Go-To Accountant
01:27 Tax-Efficient Money Extraction
01:58 Family Investment Companies Explained
04:18 Inheritance Tax Strategies
07:02 Incentivising Key Employees
10:02 Using Service Companies for Tax Efficiency
13:46 Pension Planning Insights
17:31 Ensuring Compliance and Control
23:00 Conclusion and Resources
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:29):
Hello and welcome to Business BuyingStrategies, the UK's number one podcast
for people interested in buying abusiness in the smartest possible way
without risking any of your own cash.
Now Having the right accountant onyour team can save you thousands of
pounds and also help you structuredeals in ways you hadn't thought of.
So I want you to meet my go-toaccountant, Jeff, who I've
(00:51):
worked with for almost 13 years.
So now quite often , there's a mistakenbelief that just because someone's
an accountant, uh, it means thatthey know what they're doing because
they had a accountancy qualification.
Well, you know, it's like saying someone'sa builder, they know what they're doing.
. What you need is an accountant who'son your side, who's gonna help you
(01:13):
get the best result possible for youpersonally, your family and your business.
Alright, so I've gotsome questions for you.
And these are the questions thatI've asked you over the years
and the questions that peopletypically would have in their mind.
And my first question is, what is themost tax efficient way for people to
(01:34):
extract money from their company so youdon't end up giving half of it to HMRC?
Absolutely.
So there's a couple of options, butthe, the, what happens is normally
you've got a business, you go in abit of flow, you start making good
money, and then you wanna decidewhat you do with it once you've got
enough to live, find that sorted out.
But what do you do with the surplus?
(01:55):
And I'm a massive, fan.
of family investment companies.
We call them money boxes within thepractice, but . I'll just sort of show
you roughly how it works because the ideais you're running sensible businesses.
So you start off with your, company orgroup of companies, whatever it is, and,
uh, you are the shareholders at the top,but it may well be, you might own 99.9%
(02:19):
and there is no tax on dividendsbetween companies, between UK companies.
So by voting a dividend and it's, I meanwe talked about some sensible numbers.
Let's just save the, for example,you are gonna save maybe 25,000
pounds a month you can save 'causethe profits are going nicely.
You can extract that without any tax.
(02:40):
If you take that personally, you are gonnapay high rate tax on it just under 40%.
When you get to those numbersthis way, you end up paying
zero tax on that transfer.
And this becomes your investment business.
This is where you hold your savings.
This is where you hold everything thatgets funded by the sort of the furnace
of your company or groups of companies.
(03:02):
Now this.
It can be used for buying investments.
Now, it's not an investment wherewe're gonna talk to a pension
advisor and talk about what's,invest, what, what an investment is.
An investment could be a collectionof watches, could be some nice,
cars, could be more interestingthings than you can nor do normally.
And from a business point of view,you don't even need to be the
(03:27):
majority shareholder in this business.
You may, myself and partnermight have one, share each.
And again, 99.9% of the sharesmay be owned by the children or
maybe owned by the grandchildren.
And it's just a really strong way.
Now, as long as no one's got, ifthey've, if anyone's got 25% or
more, you have to disclose it.
But if they haven't, youdon't need to disclose it.
(03:47):
So it's a really good way of taking yourmoney from the company, taking it out of
the company, any sort of risky environmentand saving it within that company.
So it's a structure for assoon as businesses start to
make a decent amount of profit.
This is how we suggest you take yourmoney out without any surplus tax, without
(04:08):
changing anything about the business.
It's 0.1%.
It's nothing, but it justallows that dividend flow to
keep sort of maximum savings.
So that was really clearly explained.
The next stage would be what happens whenwe unfortunately go to meet our Maker.
And what happens with inheritancetax, with that type of structure?
(04:30):
Well, what we've done and, andis that our generation owns
virtually nothing of this company.
So that company's worth 10 million pounds.
It might go in your, from a sharepoint of view, you might own a
thousand pounds worth of value.
So we need to pay tax up40% on your thousand pounds.
But the, uh, so are you saying thenmillion is already in the next generation?
(04:54):
The inheritance tax thingdoesn't apply because it's
already owned by your children.
Yes.
Grandchildren, yes.
Beneficiaries.
So it's a really powerfulstructure to do that.
Now we could stop right there andyou would've received your value.
Do you, if you don't appreciatehow powerful that is you, you miss
(05:16):
what I think is one of the mostimpactful parts of the last two days.
So that works really well.
But then you can then play withit a little bit if you wanted to.
Let's just say you've,I. Everything goes well.
Maybe you've got grandchildren.
I, I've got a picture of my sortof, my, my third grandchild when he
was two months old, we allocated, Iallocated him a very small shareholding,
(05:39):
very, very small shareholding.
And at two months old, he seems toget 50,000 pounds dividends a year.
And just to follow through onthat, so your, your two months old
grandchild submits a tax return.
Yep.
We do a tax return.
And, but he is, he's, he is,he is a very generous hood.
He's a very generous little fella andwhat he decides to do, he is, instead of
(06:03):
just taking it himself, he wants to lendit to me, which is really nice of him.
So instead of me, effectively, ifI was taking it out, I'll pay C
50 circa probably 18,000 poundstax, something like that on it.
We're paying about threegrand tax on it a bit less.
And so I've got money to live on, butnot pushing me into high rate tax.
That's pretty cool.
(06:24):
But we've done it witha formal loan document.
So as well as saving me 17,000pounds tax a year on that dividend,
I've also created a debt against myestate for inheritance tax purposes.
40, uh, 40% of 50,000.
That's another 20,000.
So on that one dividend for oneyear saves 37,000 pounds tax.
(06:48):
So that's not now, but youcan do it with children.
It doesn't need to be grandchildren.
It's a, it's a really powerful, althoughit's, we do it slightly differently
with children 'cause of under 18.
Okay.
But I might come up to that later.
So complete, right?
I've got, we've got lotsof things I want to cover.
Sorry.
So completely.
No, no, it's great.
Let's shift gears slightly.
Let's say I've got some key peoplein my company, maybe a business
that I've bought, key people Iwant to reward, maybe incentivize.
(07:11):
What's the best way of doingthat if you've got key people?
Well, you know, I was sitting listeningto the budget last, not the, probably
the previous one before that when,um, where HE sort of, uh, inserted a
15% national insurance cost, employersnational insurance cost on people.
That's a really popular thing, isn't it?
And reduced the limit to 5,000pounds you start paying at.
(07:33):
So suddenly you've got people paying,you know, you know, I'd say a hundred.
'cause I can do that in my headwithout getting my calculator.
I'm the School of Accountancythat I do need a calculator.
But so on that a hundredthousand pound salary.
You've got 15,000 pounds worth ofemployers national insurance, if
you were to set up the structureusing partnerships, which are
very, very powerful things.
It's also nice for the individual'cause they feel part of it.
(07:56):
They've got, they, they will have a titlepartner, which gives a responsibility.
They need to be involved a little bit inthe business, not massively a little bit.
Then suddenly you aresaving 15,000 pounds.
From their point of view.
They may be saving very little or theymay start some planning because there may
be some expenses that they're incurringthat are business related wholly and
exclusively rather than as an employee,wholly exclusive, necessarily incurred.
(08:20):
It's different tests where they canput through the LLP, so their hundred
thousand pounds might suddenly youmight be paying tax on 85,000 because
there's 15,000 pounds worth of expenses.
So you are helping, theymight not wanna do that.
'cause if they wanna get, if theygo for a mortgage, they might
say, no, I 100, I need to showa hundred fine, show a hundred.
It's not, that's not your problem.
That's their, they can, wecan have that discussion.
(08:41):
And every time we do this withpeople, what's nice is we have
the opportunity to do some taxplanning for really for your team.
We typically, you don't bother.
So there's a, you know, a couple ofhours chat about what you're doing, how
you're saving, what your investmentsare, what your pensions are, what your
plans are, and that sort of advice.
And that's confidential.
It's not relayed back to, to you, theemployer, but it's just a way of ensuring
(09:04):
that they're getting some really goodadvice and things that, that maybe you,
I take for granted they don't know about.
So that works really well.
Also, obviously the benefit of an LLPis if, uh, if you do like to have a,
a car, like most people enjoy driving. But then suddenly your 250,000 pound
Bentley or whatever you are enjoyingdriving, you will get tax relief on that.
(09:25):
They may all be used at 85% forbusiness purposes as no benefiting kind.
You just get relief for 85%.
You get a 6% allowance.
You get the balance of theallowance when the car is sold.
So it's, it's a bit backended oryou put leasing payments through.
So there is a, it's a really good wayof actually getting tax relief on a car
that you want rather than one, you'resort of forced to have our whole game.
(09:47):
The whole way of tax planning isto put as many expenses, get tax
relief on as many expenses you can.
And NLLP is a, a limitedliability partnership is a
really good way of doing that.
So again, changing tack.
I've, I've heard about peopleusing service companies.
Owned by their parentsor, or family members.
(10:07):
So how does that work in practice?
So I mentioned before about if you'vegot, if you've got children who are under
18, and what happens is that many peoplein business, and you can't do this as
artificial, it's got to be reasonable.
(10:42):
Many people in business are actuallyrely on their siblings, rely on their
parents to actually give them advice.
It's not, and it's, and that advice isoften free, but it doesn't need to be.
So you've got your company here and youmight have your, your father's company
here and that might invoice, I dunno,80,000 pounds a year for services.
(11:09):
And that's market value.
You say it doesn't, it's gotto be, it's got to be properly.
You can't just, I've gotsomebody who's not capable of
giving advice, I can't do that.
And they would, might have again99.9%, but they don't, don't really
need the money because they'vegot plenty of money elsewhere.
But they might, if you've gottwo children, whatever 0.05,
(11:31):
0.05 that's an A share, that'sa B share and that's a c share.
And then suddenly they're what gives thegrandfather nothing more pleasure that
he's giving money to his grandchildren.
So we're taking out 80,000 pounds from thecompany legitimately 'cause it's a market
value expense and we're divying out aftercorporation tax and some after expenses
(11:51):
income into the, uh, into the children.
Net result is, the game is actually, ifyou can be a basic rate taxpayer then,
but if we have a situation, I did a roughcalculation before this, typically, I know
it's typically people, when I ask peoplewhat they spend a month, it varies, always
has the same comment I spend too much.
But, and that vary, that number with theclients react for varies between 2000
(12:16):
pounds a month and 85,000 pounds a month.
Um, so it's quite a big range,but, well, there's always too much.
But if, if, let's just say they,this family a particularly say, say
they're spending 15,000 pounds a month.
Well we've got, we know we've got8,000, a fairly efficient way through
their main company where another7,000 to fund or something like this
will get to the remaining 7,000 andit will save the company probably
(12:39):
something like 71,000 pounds a year.
That was the bit exact wasn't it?
About 70,000 pounds a yearby using this structure.
So let me just, uh, justcheck something here.
Are you saying that if you're sittingin this room and you are not a
basic rate taxpayer, you're doingsomething wrong in your structuring?
(13:03):
I've set up my practice in 2003.
I've been a high ratetaxpayer in two years.
One was the year I set it out, andI, and I sold like 90% last year.
And that was, and I, so both thosetwo years I couldn't, I, so the
first year in the last year, yeah.
And every other year I'm between,um, I've been a basic rate taxpayer.
But . It depends on your circumstances,but always the way we just listen what
(13:27):
you're doing, how much you're spending,what spending it on, let's just plan
it because there's more than one.
There's always so, so if someone's sittinghere thinking, I'm being clobbered on
my tax, it's just because you haven'tgot a strategy to put yourself into
a bracket where you pay minimal tax.
Yes.
Got it.
Okay.
Let's talk about pensions.
(13:48):
Pensions are always the boring subject.
No one ever wants to talk about pensions.
But you've got a, a good take on this.
The thing about pensions are we, thefirst thing, obviously the first thing
I talked about was, was money box, whichis a great plan, but I'm not getting tax.
The dividends are going withouttax, but I'm not getting tax
leave from those dividends.
If, but setting up a pension scheme, youwill get tax leave from that contribution.
(14:12):
You can make some fairlysubstantial contributions.
You can make, whatever, up to60,000 pounds a year per person,
you can go back if you've notmade in previous three years.
So you can catch up for that to about 210.
There's a whole load of, of differentthings you can make on that.
And what you're doing is taking money.
If you think about it, it's just aspots, you're taking money from your
(14:32):
company pot into your pension pot.
It's all the same.
It's all you.
It can be you.
If you use a small self-administerscheme, we're probably a, a
big fan of doing that as well.
And by moving it from one bank accountto another bank account, you're saving
25% corporation tax or it's saving26 point a 5% corporation tax if
you're in the, in the marginal band.
(14:53):
So it makes an enormous difference.
Now the pensions took a bit ofa kicking in the, in the budget
insofar as they were very, verygood for inheritance tax planning.
They're now not so good forinheritance tax planning.
So, you know, spoiler alert, use pensionsto pay you in retirement, like use them
what they're supposed to be used for.
And if you use that,that works really well.
(15:14):
'cause again, if you think of money ina company, and let's just say I couldn't
say keep you as a basic rate taxpayerextracting that funny, that extracting
that money out while you are, if youare, when you are working, it's probably
gonna push you into high rate tax.
If you can wait to retirement, you takethat money out, you think there's a
of, if of of a million pounds in thefund, you can take out 25% tax free and
(15:38):
the remaining 750,000 you'll take outif you can get it right, a basic rate.
So 20% tax.
So that's a blended tax rateof 15% opposed to when you're
a high rate tax payer, 55%.
So it makes an enormous difference.
Okay.
So, so you've got a choice.
You pay 15% or you pay 55.
And when it's in a, if it's in a, if it'sin a sa, if it's in a small, small self
(16:00):
minister scheme, you can use it for, youcan make loans back to your business.
. It can make loans to you.
, It can buy commercial property.
Uh, there is restrictions in theirvalues in their, the numbers aren't
always as high as you'd want them to be.
But normally having some sort of strategywhere the plan is on retirement both
husband whatever, have a million poundsin their pension fund when it comes up to
(16:22):
retirement is probably a good strategy.
It's probably a good amount of planning.
So, yeah, so I, I'm, they're not dead.
They're a bit boring,but they're not dead.
Uh, in fact, I was, I had a, I've got a,a interest in a mediation business and
we think we need a bit of money and I,I was chatting to my partner literally
just this, this morning and he said, we,I think we probably need to, to fund it.
(16:45):
We need, we're buying somekit, we need to fund it.
I said, well, why don't Ijust do a pension scheme like.
I'm allowed to do that.
It will be, it'll be secured.
And net result is, I don't, I can,I'm using, literally I messaged
my, and I can, I have full accessto that money the way I run mine.
I can actually move money myself.
It's a majority actuallyneed to go through a trustee.
But, but mine's completely self-managed.
(17:07):
So literally I'll just make a payment now.
So when people are hearing all thesethings for the first time, especially
that, that early strategy, which the,which was the big golden nugget of today.
Definitely when they hear thisis, and it's different to what
they've currently been doing.
Maybe their accountant has justbeen saying, this is the tax that
you need to pay and you just pay itbecause your accountant's gotta be
(17:28):
right and you'd ever question it.
Is any of this sort oftoo close to the line?
Do you lose control in any way?
We, it's really importantthat you don't lose control.
So sometimes we do it, we can doit with secured loans, we can do
it with shareholders agreements.
We can do it with differentclasses of shares.
We do use trusts.
(17:49):
I'm not, I, the, the thing abouttrusts are really powerful up to
a particular number, but afterthat, potentially become expensive.
'cause they, they're hit with a 6%charge after, after every 10 years.
So you, so sometimes it's a littlebit restrictive, although they're,
they are very, very powerful.
My job is not to say youshould do this or do that.
My, my job is to say, you coulddo this, you could do that.
(18:10):
What do you want?
But, and explain to you what theconsequence of those decisions are.
I'm far too old to, uh, actually worry.
If you take, what I want to dois empower the information, then
you decide what to do with it.
So that, that would, yeah,that would say works.
Works really works really well.
So it's not, it's not danger.
They are normal thingswe've been doing for years.
This money box, I've been doing thatsince my previous firm, I'm gonna
(18:33):
say in the, in the mid nineties.
'cause I had a, had, I had a clientwho basically needed to extract
money from their trading company.
There were financial servicesregulated and they did not want to
leave funds in their holding company.
They did not want to take because ofpotentially it was, it was at risk.
So, but they wanted to take the money out.
So that's, we, so that's about 1995.
I, I came up with the planliterally on a, on a long train
(18:55):
journey back from Cornwall.
Uh, like how am I gonna sort this?
Yeah, that's it.
So are you saying then that eventhough you might not have heard
these approaches before, theseare H-M-R-C-C safe, validated.
You're not gonna haveanyone knocking on the door.
No, absolutely.
In fact, one, one time we, we, Isay money box we, we've used for
(19:16):
years and we, one of our clients wasselling and it was, they were selling
and they had a small interest intheir money box in their investment
company, family investment company.
And I didn't know this, but theperson selling it was, he was chatting
to the, on the other side, it wasa, it was a PWC partner or who was
helping the, on the acquisition.
(19:37):
And they were actually met eachother, they whatever, walking
their dogs on hamster Heath.
And the client said, what do you thinkabout, is everything going right?
Due diligence?
And they said, and PWC said, yeah,we've got a solution that sort of
follows what, what your accountant'sdone, but yours is so much simpler.
And I thought, and that was,I was really happy with that.
That was a good, that was a, that wasso you don't need to overcomplicate it.
(19:59):
Yeah, you can keep it straightforward.
Keep it simple.
Keep it simple.
. . , , The, the pension can make a loan to you.
It can make a loan.
The restriction is 50% of its value.
So if there's a, if there's a millionpounds worth of assets, you can lend out.
500,000 pounds, it will charge youa commercial rate and needs to be
paid back over a period of time.
It's a funny, it's a, it's asort of unusual calculation, but
(20:19):
it's fact it's over seven years.
But if there's a problem, you canalways go to the trustees and say, can
we just, we need to restructure that.
That way it's simply gone out andit will come back with interest.
Obviously tax relief in the vehiclethat's, that's, um, paying the interest
and pensions are tax free, so it justgrows tax free on the other side.
So it's sort of, it's,it, it's in and out.
(20:40):
You could also take out, drawdown your 25%, use that for that,
for the acquisition as well.
But it's all about a planning.
Obviously if you, if you are past 55,you can, you can take out 25% tax free.
If you're not, it needs tobe done by a loan position.
I'm quite, I'm a big fan of sortof trying to maintain your pension
as much as possible and then useit when you need it and actually
(21:01):
genuinely use it when you need it.
I'll give a, a sort of preamble,explain sort of something else.
It talks about being a basic ratetaxpayer and it's really important
to be a basic rate taxpayer, , soyou get to whatever, 60 aside, fine.
I'm gonna, I'm gonna start takingpension out and you'll take out
whatever you need to take out.
You might be taking outsay 75,050, be taxable.
Subject to income tax willbe seven half thousand.
(21:23):
And the, the extra differencebetween 50 and 75, the 25 will be a
draw down of your tax free amount.
So on your 75,000, effectivelyyou're paying seven, 7,500 tax, but
that's not enough money for you.
It's fine.
You can actually take a loan out of thiscompany if you want to, if you've not
used grant, whatever, not use other,you can take a loan from that company.
(21:45):
Net result is you get the cashhappy days, all is good, but you
do not pay personal tax on it.
We pay the personal tax on theinterest on it, it's not very much.
And on death, again, it's thisliability back to the company.
So you are taking the money,spending what you need to not
pushing yourself into high rate tax.
But creating a liability against yourestate for inheritance tax purposes.
(22:08):
So , with planning, it's notthe hardest thing in the world
to remain a base at tax back.
That's why you've gotta havethe right people on your team.
Once you've used up your basic ratetax band loans are pretty good.
Yeah,, I'm a big fan of using loans.
Yeah.
, So the loan back, , the way I write theseloans typically is their payback on death.
(22:28):
So they're not payable during the life.
'cause that's the purpose of them as faras the classification of investments.
If you're buying something that is justclearly not for investment, then the
revenue can say, well, what you doing?
This is really just you living.
And I wouldn't do that.
You know, something, everyone wouldthink, oh, I don't wanna hear about tax.
Tax is boring, tax is boring,but actually tax can be really
(22:50):
interesting when you realize thatthis is your money, you've just gotta
make sure it's allocated correctly.
Don't just hand over 50% ofit to the government to do
with whatever they do with it.
Thanks for listening toBusiness Buying Strategies.
If you enjoyed today's episode, pleasesubscribe and leave a review and remember,
for more resources and guidance on buyinga business, visit dealmakers.co.uk.
(23:13):
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Get it now@dealmakerspodcast.co uk.
We are back in a fortnight.
Until then, here's to yournext successful acquisition.
Hello and welcome to Business BuyingStrategies, the UK's number one podcast
for people interested in buying abusiness in the smartest possible way
without risking any of your own cash.
Now Having the right accountant onyour team can save you thousands of
pounds and also help you structuredeals in ways you hadn't thought of.
So I want you to meet my go-toaccountant, Jeff, who I've
(00:51):
worked with for almost 13 years.
So now quite often , there's a mistakenbelief that just because someone's
an accountant, uh, it means thatthey know what they're doing because
they had a accountancy qualification.
Well, you know, it's like saying someone'sa builder, they know what they're doing.
. What you need is an accountant who'son your side, who's gonna help you
(01:13):
get the best result possible for youpersonally, your family and your business.
Alright, so I've gotsome questions for you.
And these are the questions thatI've asked you over the years
and the questions that peopletypically would have in their mind.
And my first question is, what is themost tax efficient way for people to
(01:34):
extract money from their company so youdon't end up giving half of it to HMRC?
Absolutely.
So there's a couple of options, butthe, the, what happens is normally
you've got a business, you go in abit of flow, you start making good
money, and then you wanna decidewhat you do with it once you've got
enough to live, find that sorted out.
But what do you do with the surplus?
(01:55):
And I'm a massive, fan.
of family investment companies.
We call them money boxes within thepractice, but . I'll just sort of show
you roughly how it works because the ideais you're running sensible businesses.
So you start off with your, company orgroup of companies, whatever it is, and,
uh, you are the shareholders at the top,but it may well be, you might own 99.9%
(02:19):
and there is no tax on dividendsbetween companies, between UK companies.
So by voting a dividend and it's, I meanwe talked about some sensible numbers.
Let's just save the, for example,you are gonna save maybe 25,000
pounds a month you can save 'causethe profits are going nicely.
You can extract that without any tax.
(02:40):
If you take that personally, you are gonnapay high rate tax on it just under 40%.
When you get to those numbersthis way, you end up paying
zero tax on that transfer.
And this becomes your investment business.
This is where you hold your savings.
This is where you hold everything thatgets funded by the sort of the furnace
of your company or groups of companies.
(03:02):
Now this.
It can be used for buying investments.
Now, it's not an investment wherewe're gonna talk to a pension
advisor and talk about what's,invest, what, what an investment is.
An investment could be a collectionof watches, could be some nice,
cars, could be more interestingthings than you can nor do normally.
And from a business point of view,you don't even need to be the
(03:27):
majority shareholder in this business.
You may, myself and partnermight have one, share each.
And again, 99.9% of the sharesmay be owned by the children or
maybe owned by the grandchildren.
And it's just a really strong way.
Now, as long as no one's got, ifthey've, if anyone's got 25% or
more, you have to disclose it.
But if they haven't, youdon't need to disclose it.
(03:47):
So it's a really good way of taking yourmoney from the company, taking it out of
the company, any sort of risky environmentand saving it within that company.
So it's a structure for assoon as businesses start to
make a decent amount of profit.
This is how we suggest you take yourmoney out without any surplus tax, without
(04:08):
changing anything about the business.
It's 0.1%.
It's nothing, but it justallows that dividend flow to
keep sort of maximum savings.
So that was really clearly explained.
The next stage would be what happens whenwe unfortunately go to meet our Maker.
And what happens with inheritancetax, with that type of structure?
(04:30):
Well, what we've done and, andis that our generation owns
virtually nothing of this company.
So that company's worth 10 million pounds.
It might go in your, from a sharepoint of view, you might own a
thousand pounds worth of value.
So we need to pay tax up40% on your thousand pounds.
But the, uh, so are you saying thenmillion is already in the next generation?
(04:54):
The inheritance tax thingdoesn't apply because it's
already owned by your children.
Yes.
Grandchildren, yes.
Beneficiaries.
So it's a really powerfulstructure to do that.
Now we could stop right there andyou would've received your value.
Do you, if you don't appreciatehow powerful that is you, you miss
(05:16):
what I think is one of the mostimpactful parts of the last two days.
So that works really well.
But then you can then play withit a little bit if you wanted to.
Let's just say you've,I. Everything goes well.
Maybe you've got grandchildren.
I, I've got a picture of my sortof, my, my third grandchild when he
was two months old, we allocated, Iallocated him a very small shareholding,
(05:39):
very, very small shareholding.
And at two months old, he seems toget 50,000 pounds dividends a year.
And just to follow through onthat, so your, your two months old
grandchild submits a tax return.
Yep.
We do a tax return.
And, but he is, he's, he is,he is a very generous hood.
He's a very generous little fella andwhat he decides to do, he is, instead of
(06:03):
just taking it himself, he wants to lendit to me, which is really nice of him.
So instead of me, effectively, ifI was taking it out, I'll pay C
50 circa probably 18,000 poundstax, something like that on it.
We're paying about threegrand tax on it a bit less.
And so I've got money to live on, butnot pushing me into high rate tax.
That's pretty cool.
(06:24):
But we've done it witha formal loan document.
So as well as saving me 17,000pounds tax a year on that dividend,
I've also created a debt against myestate for inheritance tax purposes.
40, uh, 40% of 50,000.
That's another 20,000.
So on that one dividend for oneyear saves 37,000 pounds tax.
(06:48):
So that's not now, but youcan do it with children.
It doesn't need to be grandchildren.
It's a, it's a really powerful, althoughit's, we do it slightly differently
with children 'cause of under 18.
Okay.
But I might come up to that later.
So complete, right?
I've got, we've got lotsof things I want to cover.
Sorry.
So completely.
No, no, it's great.
Let's shift gears slightly.
Let's say I've got some key peoplein my company, maybe a business
that I've bought, key people Iwant to reward, maybe incentivize.
(07:11):
What's the best way of doingthat if you've got key people?
Well, you know, I was sitting listeningto the budget last, not the, probably
the previous one before that when,um, where HE sort of, uh, inserted a
15% national insurance cost, employersnational insurance cost on people.
That's a really popular thing, isn't it?
And reduced the limit to 5,000pounds you start paying at.
(07:33):
So suddenly you've got people paying,you know, you know, I'd say a hundred.
'cause I can do that in my headwithout getting my calculator.
I'm the School of Accountancythat I do need a calculator.
But so on that a hundredthousand pound salary.
You've got 15,000 pounds worth ofemployers national insurance, if
you were to set up the structureusing partnerships, which are
very, very powerful things.
It's also nice for the individual'cause they feel part of it.
(07:56):
They've got, they, they will have a titlepartner, which gives a responsibility.
They need to be involved a little bit inthe business, not massively a little bit.
Then suddenly you aresaving 15,000 pounds.
From their point of view.
They may be saving very little or theymay start some planning because there may
be some expenses that they're incurringthat are business related wholly and
exclusively rather than as an employee,wholly exclusive, necessarily incurred.
(08:20):
It's different tests where they canput through the LLP, so their hundred
thousand pounds might suddenly youmight be paying tax on 85,000 because
there's 15,000 pounds worth of expenses.
So you are helping, theymight not wanna do that.
'cause if they wanna get, if theygo for a mortgage, they might
say, no, I 100, I need to showa hundred fine, show a hundred.
It's not, that's not your problem.
That's their, they can, wecan have that discussion.
(08:41):
And every time we do this withpeople, what's nice is we have
the opportunity to do some taxplanning for really for your team.
We typically, you don't bother.
So there's a, you know, a couple ofhours chat about what you're doing, how
you're saving, what your investmentsare, what your pensions are, what your
plans are, and that sort of advice.
And that's confidential.
It's not relayed back to, to you, theemployer, but it's just a way of ensuring
(09:04):
that they're getting some really goodadvice and things that, that maybe you,
I take for granted they don't know about.
So that works really well.
Also, obviously the benefit of an LLPis if, uh, if you do like to have a,
a car, like most people enjoy driving. But then suddenly your 250,000 pound
Bentley or whatever you are enjoyingdriving, you will get tax relief on that.
(09:25):
They may all be used at 85% forbusiness purposes as no benefiting kind.
You just get relief for 85%.
You get a 6% allowance.
You get the balance of theallowance when the car is sold.
So it's, it's a bit backended oryou put leasing payments through.
So there is a, it's a really good wayof actually getting tax relief on a car
that you want rather than one, you'resort of forced to have our whole game.
(09:47):
The whole way of tax planning isto put as many expenses, get tax
relief on as many expenses you can.
And NLLP is a, a limitedliability partnership is a
really good way of doing that.
So again, changing tack.
I've, I've heard about peopleusing service companies.
Owned by their parentsor, or family members.
(10:07):
So how does that work in practice?
So I mentioned before about if you'vegot, if you've got children who are under
18, and what happens is that many peoplein business, and you can't do this as
artificial, it's got to be reasonable.
(10:42):
Many people in business are actuallyrely on their siblings, rely on their
parents to actually give them advice.
It's not, and it's, and that advice isoften free, but it doesn't need to be.
So you've got your company here and youmight have your, your father's company
here and that might invoice, I dunno,80,000 pounds a year for services.
(11:09):
And that's market value.
You say it doesn't, it's gotto be, it's got to be properly.
You can't just, I've gotsomebody who's not capable of
giving advice, I can't do that.
And they would, might have again99.9%, but they don't, don't really
need the money because they'vegot plenty of money elsewhere.
But they might, if you've gottwo children, whatever 0.05,
(11:31):
0.05 that's an A share, that'sa B share and that's a c share.
And then suddenly they're what gives thegrandfather nothing more pleasure that
he's giving money to his grandchildren.
So we're taking out 80,000 pounds from thecompany legitimately 'cause it's a market
value expense and we're divying out aftercorporation tax and some after expenses
(11:51):
income into the, uh, into the children.
Net result is, the game is actually, ifyou can be a basic rate taxpayer then,
but if we have a situation, I did a roughcalculation before this, typically, I know
it's typically people, when I ask peoplewhat they spend a month, it varies, always
has the same comment I spend too much.
But, and that vary, that number with theclients react for varies between 2000
(12:16):
pounds a month and 85,000 pounds a month.
Um, so it's quite a big range,but, well, there's always too much.
But if, if, let's just say they,this family a particularly say, say
they're spending 15,000 pounds a month.
Well we've got, we know we've got8,000, a fairly efficient way through
their main company where another7,000 to fund or something like this
will get to the remaining 7,000 andit will save the company probably
(12:39):
something like 71,000 pounds a year.
That was the bit exact wasn't it?
About 70,000 pounds a yearby using this structure.
So let me just, uh, justcheck something here.
Are you saying that if you're sittingin this room and you are not a
basic rate taxpayer, you're doingsomething wrong in your structuring?
(13:03):
I've set up my practice in 2003.
I've been a high ratetaxpayer in two years.
One was the year I set it out, andI, and I sold like 90% last year.
And that was, and I, so both thosetwo years I couldn't, I, so the
first year in the last year, yeah.
And every other year I'm between,um, I've been a basic rate taxpayer.
But . It depends on your circumstances,but always the way we just listen what
(13:27):
you're doing, how much you're spending,what spending it on, let's just plan
it because there's more than one.
There's always so, so if someone's sittinghere thinking, I'm being clobbered on
my tax, it's just because you haven'tgot a strategy to put yourself into
a bracket where you pay minimal tax.
Yes.
Got it.
Okay.
Let's talk about pensions.
(13:48):
Pensions are always the boring subject.
No one ever wants to talk about pensions.
But you've got a, a good take on this.
The thing about pensions are we, thefirst thing, obviously the first thing
I talked about was, was money box, whichis a great plan, but I'm not getting tax.
The dividends are going withouttax, but I'm not getting tax
leave from those dividends.
If, but setting up a pension scheme, youwill get tax leave from that contribution.
(14:12):
You can make some fairlysubstantial contributions.
You can make, whatever, up to60,000 pounds a year per person,
you can go back if you've notmade in previous three years.
So you can catch up for that to about 210.
There's a whole load of, of differentthings you can make on that.
And what you're doing is taking money.
If you think about it, it's just aspots, you're taking money from your
(14:32):
company pot into your pension pot.
It's all the same.
It's all you.
It can be you.
If you use a small self-administerscheme, we're probably a, a
big fan of doing that as well.
And by moving it from one bank accountto another bank account, you're saving
25% corporation tax or it's saving26 point a 5% corporation tax if
you're in the, in the marginal band.
(14:53):
So it makes an enormous difference.
Now the pensions took a bit ofa kicking in the, in the budget
insofar as they were very, verygood for inheritance tax planning.
They're now not so good forinheritance tax planning.
So, you know, spoiler alert, use pensionsto pay you in retirement, like use them
what they're supposed to be used for.
And if you use that,that works really well.
(15:14):
'cause again, if you think of money ina company, and let's just say I couldn't
say keep you as a basic rate taxpayerextracting that funny, that extracting
that money out while you are, if youare, when you are working, it's probably
gonna push you into high rate tax.
If you can wait to retirement, you takethat money out, you think there's a
of, if of of a million pounds in thefund, you can take out 25% tax free and
(15:38):
the remaining 750,000 you'll take outif you can get it right, a basic rate.
So 20% tax.
So that's a blended tax rateof 15% opposed to when you're
a high rate tax payer, 55%.
So it makes an enormous difference.
Okay.
So, so you've got a choice.
You pay 15% or you pay 55.
And when it's in a, if it's in a, if it'sin a sa, if it's in a small, small self
(16:00):
minister scheme, you can use it for, youcan make loans back to your business.
. It can make loans to you.
, It can buy commercial property.
Uh, there is restrictions in theirvalues in their, the numbers aren't
always as high as you'd want them to be.
But normally having some sort of strategywhere the plan is on retirement both
husband whatever, have a million poundsin their pension fund when it comes up to
(16:22):
retirement is probably a good strategy.
It's probably a good amount of planning.
So, yeah, so I, I'm, they're not dead.
They're a bit boring,but they're not dead.
Uh, in fact, I was, I had a, I've got a,a interest in a mediation business and
we think we need a bit of money and I,I was chatting to my partner literally
just this, this morning and he said, we,I think we probably need to, to fund it.
(16:45):
We need, we're buying somekit, we need to fund it.
I said, well, why don't Ijust do a pension scheme like.
I'm allowed to do that.
It will be, it'll be secured.
And net result is, I don't, I can,I'm using, literally I messaged
my, and I can, I have full accessto that money the way I run mine.
I can actually move money myself.
It's a majority actuallyneed to go through a trustee.
But, but mine's completely self-managed.
(17:07):
So literally I'll just make a payment now.
So when people are hearing all thesethings for the first time, especially
that, that early strategy, which the,which was the big golden nugget of today.
Definitely when they hear thisis, and it's different to what
they've currently been doing.
Maybe their accountant has justbeen saying, this is the tax that
you need to pay and you just pay itbecause your accountant's gotta be
(17:28):
right and you'd ever question it.
Is any of this sort oftoo close to the line?
Do you lose control in any way?
We, it's really importantthat you don't lose control.
So sometimes we do it, we can doit with secured loans, we can do
it with shareholders agreements.
We can do it with differentclasses of shares.
We do use trusts.
(17:49):
I'm not, I, the, the thing abouttrusts are really powerful up to
a particular number, but afterthat, potentially become expensive.
'cause they, they're hit with a 6%charge after, after every 10 years.
So you, so sometimes it's a littlebit restrictive, although they're,
they are very, very powerful.
My job is not to say youshould do this or do that.
My, my job is to say, you coulddo this, you could do that.
(18:10):
What do you want?
But, and explain to you what theconsequence of those decisions are.
I'm far too old to, uh, actually worry.
If you take, what I want to dois empower the information, then
you decide what to do with it.
So that, that would, yeah,that would say works.
Works really works really well.
So it's not, it's not danger.
They are normal thingswe've been doing for years.
This money box, I've been doing thatsince my previous firm, I'm gonna
(18:33):
say in the, in the mid nineties.
'cause I had a, had, I had a clientwho basically needed to extract
money from their trading company.
There were financial servicesregulated and they did not want to
leave funds in their holding company.
They did not want to take because ofpotentially it was, it was at risk.
So, but they wanted to take the money out.
So that's, we, so that's about 1995.
I, I came up with the planliterally on a, on a long train
(18:55):
journey back from Cornwall.
Uh, like how am I gonna sort this?
Yeah, that's it.
So are you saying then that eventhough you might not have heard
these approaches before, theseare H-M-R-C-C safe, validated.
You're not gonna haveanyone knocking on the door.
No, absolutely.
In fact, one, one time we, we, Isay money box we, we've used for
(19:16):
years and we, one of our clients wasselling and it was, they were selling
and they had a small interest intheir money box in their investment
company, family investment company.
And I didn't know this, but theperson selling it was, he was chatting
to the, on the other side, it wasa, it was a PWC partner or who was
helping the, on the acquisition.
(19:37):
And they were actually met eachother, they whatever, walking
their dogs on hamster Heath.
And the client said, what do you thinkabout, is everything going right?
Due diligence?
And they said, and PWC said, yeah,we've got a solution that sort of
follows what, what your accountant'sdone, but yours is so much simpler.
And I thought, and that was,I was really happy with that.
That was a good, that was a, that wasso you don't need to overcomplicate it.
(19:59):
Yeah, you can keep it straightforward.
Keep it simple.
Keep it simple.
. . , , The, the pension can make a loan to you.
It can make a loan.
The restriction is 50% of its value.
So if there's a, if there's a millionpounds worth of assets, you can lend out.
500,000 pounds, it will charge youa commercial rate and needs to be
paid back over a period of time.
It's a funny, it's a, it's asort of unusual calculation, but
(20:19):
it's fact it's over seven years.
But if there's a problem, you canalways go to the trustees and say, can
we just, we need to restructure that.
That way it's simply gone out andit will come back with interest.
Obviously tax relief in the vehiclethat's, that's, um, paying the interest
and pensions are tax free, so it justgrows tax free on the other side.
So it's sort of, it's,it, it's in and out.
(20:40):
You could also take out, drawdown your 25%, use that for that,
for the acquisition as well.
But it's all about a planning.
Obviously if you, if you are past 55,you can, you can take out 25% tax free.
If you're not, it needs tobe done by a loan position.
I'm quite, I'm a big fan of sortof trying to maintain your pension
as much as possible and then useit when you need it and actually
(21:01):
genuinely use it when you need it.
I'll give a, a sort of preamble,explain sort of something else.
It talks about being a basic ratetaxpayer and it's really important
to be a basic rate taxpayer, , soyou get to whatever, 60 aside, fine.
I'm gonna, I'm gonna start takingpension out and you'll take out
whatever you need to take out.
You might be taking outsay 75,050, be taxable.
Subject to income tax willbe seven half thousand.
(21:23):
And the, the extra differencebetween 50 and 75, the 25 will be a
draw down of your tax free amount.
So on your 75,000, effectivelyyou're paying seven, 7,500 tax, but
that's not enough money for you.
It's fine.
You can actually take a loan out of thiscompany if you want to, if you've not
used grant, whatever, not use other,you can take a loan from that company.
(21:45):
Net result is you get the cashhappy days, all is good, but you
do not pay personal tax on it.
We pay the personal tax on theinterest on it, it's not very much.
And on death, again, it's thisliability back to the company.
So you are taking the money,spending what you need to not
pushing yourself into high rate tax.
But creating a liability against yourestate for inheritance tax purposes.
(22:08):
So , with planning, it's notthe hardest thing in the world
to remain a base at tax back.
That's why you've gotta havethe right people on your team.
Once you've used up your basic ratetax band loans are pretty good.
Yeah,, I'm a big fan of using loans.
Yeah.
, So the loan back, , the way I write theseloans typically is their payback on death.
(22:28):
So they're not payable during the life.
'cause that's the purpose of them as faras the classification of investments.
If you're buying something that is justclearly not for investment, then the
revenue can say, well, what you doing?
This is really just you living.
And I wouldn't do that.
You know, something, everyone wouldthink, oh, I don't wanna hear about tax.
Tax is boring, tax is boring,but actually tax can be really
(22:50):
interesting when you realize thatthis is your money, you've just gotta
make sure it's allocated correctly.
Don't just hand over 50% ofit to the government to do
with whatever they do with it.
Thanks for listening toBusiness Buying Strategies.
If you enjoyed today's episode, pleasesubscribe and leave a review and remember,
for more resources and guidance on buyinga business, visit dealmakers.co.uk.
(23:13):
Have you downloaded your freebusiness buying toolkit yet
it's packed with resources tohelp you close your next deal?
Get it now@dealmakerspodcast.co uk.
We are back in a fortnight.
Until then, here's to yournext successful acquisition.
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