A financial planner can offer valuable expertise that goes beyond just recommending financial products.
This expertise can help business owners make the most of their money both in and out of their business. Let’s look at a few ways a financial planner can provide significant value.
Maximising Pensions
Some may be aware that when a business contributes to someone’s pension, it’s considered a business expense and lowers their corporation tax liability. However, without financial advice, other pension opportunities may be overlooked.
Everyone can pay £60,000 each tax year into their pensions but they also have the option to carry forward any unused pension allowances from the last three tax years. This can be very helpful if business profits fluctuate or where profits have previously been reinvested rather than contributed to a pension. With this option, business owners can catch up on pension contributions in profitable years, optimising their tax position.
They can also use certain pension schemes, like a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS), to buy commercial property. By renting the property back to their business, the rental income goes directly into their pension pot tax-free, increasing its value. Additionally, if they sell the property, there’s no capital gains tax on the profits. This strategy can be particularly advantageous for business owners aiming to diversify their retirement planning and make their pension work harder.
Protecting the Business and Loved ones
Starting and growing a business takes a lot of hard work and dedication. But what if something unexpected happens? Many business owners don’t realise how important it is to protect their business’s continuity and their family’s financial future. A financial planner can make a big difference here. Here are three types of insurance that can help:
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Key-Person Insurance: This policy helps the business keep running smoothly if a key team member passes away or suffers a critical illness.
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Relevant Life Cover: This is a tax-efficient way for a company to provide term assurance for its employees and directors. Since it’s arranged through the company, it’s also a deductible expense, reducing the company’s tax liability.
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Shareholder Protection Insurance: This type of insurance provides a lump sum if a business owner dies or is critically ill, allowing the remaining owners to buy out the deceased owner’s share of the business. This insurance is often set up alongside a shareholder agreement, which could be either a cross-option agreement (giving both parties the right to buy/sell) or a single-option agreement (forcing a sale if one party wants it).
Building Personal Wealth Outside of the Business
It’s common for business owners to have most of their wealth tied up in their business. When thinking about money, it’s important to consider both personal and business finances. A financial planner looks at someone’s overall wealth, including any assets or income from a spouse, to help build long-term financial security. Using cashflow modelling, they can help business owners plan for different financial situations, giving them peace of mind as they put money towards pensions or other investments. This tool is also crucial for retirement planning, giving a clear picture of how much money a business might need to be sold for.
