Tax Minimisation for Business Owners
Tax minimising ideas for local business owners across Wrexham, Chester and Oswestry.
Business owners across Wrexham, Chester and Oswestry have a lot to think about every day…
Cashflow, staff, operations, customer service – the list goes on.
But one big benefit of being a business owner is you can be more creative in how you minimise your tax. Here are 3 key ways that business owners can do that:
There are three main ways for business owners to extract their hard-earned profits: salary, dividends and pension contributions. If none of these options are utilised, then the alternative will be to allow profits to build up in the business. This may seem like an attractive option if you do not have a need for any additional income. However, too much cash in your business could mean that it does not qualify for certain tax reliefs and exemptions. The first relief that may be lost is entrepreneur’s relief, which potentially halves the capital gains tax rate on sale. The second possibility is that too much cash in your business would mean it does not qualify for business relief, resulting in the possibility of inheritance tax becoming due on your business. To avoid this situation, you can contribute significant amounts (potentially up to £160,000 in one tax year) to a pension directly from your business. The contributions are likely to qualify for corporation tax relief, and there are no NICS, income tax or dividend tax to pay.
It is probably the case that you have some form of life insurance in place to financially protect your family if the worst happens. Many business owners do not realise that it is possible to run life insurance through the business. A Relevant Life Plan allows you to provide employees (including yourself as a director) with tax efficient death in service benefits without the need for, or alongside, a pension scheme. The premiums are usually the same as the amount you would pay for a personal life insurance policy. However, the premiums are an allowable deduction against corporation tax and do not count as a P11D benefit in kind. The benefit can be paid out to a beneficiary of your choice, and would be paid into trust tax-free, so it does not form part of your estate. Setting up your life insurance in this way could minimise the real cost to you by up to 53%.
Business Relief was introduced in 1976 to allow owners to pass on their business to family members without incurring inheritance tax. UK trading businesses will usually qualify for this relief. However, if you hold too much cash in your business, it is possible that business relief would not be able to be claimed, meaning inheritance tax could be due at 40% when family members inherit your business. If you do not wish to extract the excess cash from the business, there are investment strategies available to avoid losing this important relief. These strategies allow you to invest excess cash within the business, and allow your business to qualify for business relief, and you can therefore minimise the potential for inheritance tax.
If you are a business owner across Wrexham, Chester or Oswestry, and would like to arrange a meeting with our specialist Independent Financial Adviser, Craig Roberts, please do not hesitate to get in touch. E-mail firstname.lastname@example.org or call the office on 01978 806505.
The information which is summarised above does not constitute financial or other professional advice and is general in nature.
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