Queen Elizabeth II 1926 - 2022

There are several key financial areas that you and your fellow directors or partners may wish to consider as part of your corporate financial planning, including:

  • taking profits from the company in a tax-efficient manner
  • ensuring the continued viability of your business in the event of the death of a key member of the team
  • arrangements to ensure a shareholder’s dependents receive the full value of the shareholding in the event of the shareholder’s premature death and that control of the company remains with the other shareholders.

Extracting profits

Establishing a pension, whether a Self-Invested Personal Pension (SIPP) or an equivalent company scheme (a Small Self Administered Scheme) and making contributions direct from the company is an effective way of removing profits from a company.

The contribution is usually allowable as an expense to be set against corporation tax and there are no income tax or national insurance contributions payable. On death, before drawing benefits the full amount of the pension is paid out free of inheritance tax.

Funds inside the pension grow free of capital gains tax and most income tax. The pension can be used to invest in commercial property, lend money back to the company, invest in shares in the company and make the usual managed investments.

From the age of 55 you can access 25 per cent of the pension as a tax-free lump sum, with the residual fund used to provide a flexible taxable income.

When used to its full potential, a pension can be a valuable business and tax-planning vehicle.

It is important to consider family shareholdings and family remuneration where services are provided to the company.

Key person cover

The death or disability of a key member of a company can be extremely damaging to the business. The ability to continue trading and maintain the financial wellbeing of the firm is vital. In the absence of a contingency plan, the business may suffer serious financial difficulty.

The financial solution is to arrange life cover and critical illness cover to ensure that the necessary funds are available to compensate for the loss in profits, as a result of the absence of a key person.

Shareholder protection

When running a business, it is often the case that little attention is paid to what might happen if a shareholder dies.

In the interests of financial security, business stability and continuity, particularly if there are only a small number of shareholders, it is essential to provide a safety net following the loss of a shareholder: This is because:

  • shares may go to the deceased’s family, who have no interest in the business and would prefer a cash sum.
  • the company or other shareholders will want to retain control by buying lost shares, but may not have the resources to do so
  • the shares may be taken over by someone who does not share the company’s objectives.

Shareholder protection allows for sufficient funds to be available in the event of the death of a shareholder. This is achieved by the company taking out life assurance policies on the lives of its main shareholders, ensuring that:

  • the company can continue to operate unhindered, with the deceased shareholders’ family receiving fair compensation
  • the company can avoid having to draw on funds set aside for other purposes
  • the insurance company that we recommend can provide documentation to enable the surviving shareholders to receive the funds free of tax.

For more information on our corporate financial planning services, please contact us.

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