Business man looking through investments paperwork and checking on laptop

08 May 2024

Boosting your wealth as a business owner

As a business owner, you work hard to make your business a success and are often time poor. You also understand the need to manage risk and generate a good return on your investment.


Clear-sighted strategy and good management are key elements of business success, and they are also the core of effective wealth management and financial stability.

Investment diversification

Saving your hard-earned cash with a bank or building society is a good discipline but it’s not always the most effective way to grow your wealth. Building an investment portfolio can be a great way to do more with your money. Investment diversification is essential for business owners who want their money to work as hard as they do. Your investment portfolio should include a balanced selection of the main asset classes including stocks, bonds as well as some property and cash.

A well-diversified portfolio is designed to minimise your risk from volatile markets, since each asset class behaves differently at different times in response to external factors such as inflation, interest rates, energy prices, wars, and climate change.

Your portfolio should also be carefully diversified within each asset class. For instance, equities should be spread across a range of sectors, domestic and overseas stocks, established and emerging markets, as well as value stocks, growth stocks and income stocks.

The portfolio will also be tailored to meet your particular risk tolerance, time horizons and financial goals. If you are approaching retirement, for example, your wealth manager may choose to reduce equity risk in your portfolio and maximise bond income.

Exit planning

No matter how much you enjoy running your company, the time will come when you’re considering a well-earned retirement.

Taking a strategic approach to exit planning can make a huge difference to the ultimate success, and sale proceeds, when you finally step down. However, nearly half of business owners do not have an exit strategy in place.1

Handing over the reins to the next generation of the family requires a succession plan. If you’d rather sell the business to a third party, then involve your preferred purchaser as early as possible, whether it’s a trade sale, a management buyout, a family buyout, or a company purchase of your shares.

Get clarity over the sale valuation of your business and how your capital will be released. Exit strategies should be tax-friendly and you will be taxed differently depending on whether you take consideration in cash, shares, or via an earn-out.

Taking a strategic approach to exit planning can make a huge difference to the ultimate success, and sale proceeds, when you finally step down. However, nearly half of business owners do not have an exit strategy in place.1

Capital gains tax, at 20%, is payable on the sale of a business but it can be halved by using Business Asset Disposal Relief, also known as entrepreneur’s relief. Selling your business to an employee ownership trust can be completely tax free.

Pensions

Some business owners view their business as their pension but that can be risky, given the threat of the business failing or the value collapsing when the founder retires.

Pensions therefore play a vital role in securing a comfortable retirement for business owners. Pension plans are as individual as business owners but it’s good to understand the core options.

Workplace pension

This is the most common type of pension today and basically serves as a tax-efficient, long-term savings scheme.

If you are a director of your company, as well as an owner, and have an employment contract, then you are eligible to join your own workplace pension scheme. This enables you to get both corporation tax relief and personal tax relief, making it a good tax-efficient choice.

Self-invested Personal Pension (SIPP)

A SIPP is a personal pension that allows you to invest in a wider range of assets than a standard personal pension, including exchange traded funds and in some cases, commercial property. The self-invested DIY approach can be liberating but also requires considerable confidence and expertise. If the SIPP is your sole pension, you could contribute up to £60,000 a year.

Small Self-Administered Scheme (SSAS)

A SSAS is a type of workplace pension designed for directors of small companies up to a maximum membership of 11. As with SIPP, the annual tax-free contribution is up to £60,000. With a SSAS you can lend up to half of the scheme’s funds to your company and hold up to 5% of its assets in shares in your business.

Strategies to maximise pensions savings

Maximising your pension pot will allow you to enjoy a comfortable retirement lifestyle and look after your family.

In simple terms, you should pay as much as you can into your pension, as early as you can and for as long as you can. That takes advantage of compounding effects and the long-term rise in markets.

Increasing your payments in line with your earnings is a good discipline. If you increase your pay, then ratchet up your pension payments by the same percentage.

Tax reliefs on pension contributions are generous and will boost your pot, but if you are a higher or additional rate taxpayer you have to claim part of the tax relief from HMRC. Many higher rate and additional rate taxpayers fail to do so.

Making employer contributions allows you to save on corporation tax, as well as national insurance contributions. Redirecting business profits into your pension can help to reduce the CGT liability on the sale of your company. It’s also an effective way to pass on wealth since your business assets form part of the pension, which sits outside your estate and therefore escapes IHT.

Protection

When it comes to insuring the lives of business owners and shareholders, just one in five small- and medium-sized enterprises (SMEs) have the right protection in place,2 despite the fact that key people, arguably your most important asset, are hard to replace.

If an essential team member dies, or gets seriously ill, the business impact could be devastating. Key person insurance gives your company protection from this tragic event, covering areas such as lost revenues and hiring costs.

Should a major shareholder die, or become critically ill, a shareholder protection policy allows the remaining shareholders to buy out their shares. This can be crucial to retain control of the business and to enable a smooth pay out of funds to the family of the deceased shareholder.

Conclusion

Effective wealth planning for business owners requires a comprehensive approach that encompasses investment diversification, exit planning, pensions, and protection. By working with a trusted wealth management adviser, business owners can safeguard their financial future, maximise their wealth accumulation, and achieve long-term financial success.

Please get in touch if you’d like to speak to one of our financial planners today.

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Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

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Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

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For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

At any time you can change your mind and opt-out of these communications via the unsubscribe link in any of our emails or by contacting unsubscribe@investecwin.co.uk.

For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

At any time you can change your mind and opt-out of these communications via the unsubscribe link in any of our emails or by contacting unsubscribe@investecwin.co.uk.

For more information on how we use your data, please see our Privacy Notice.


Investec Wealth & Investment Limited, a subsidiary of Rathbones Group Plc, would like to keep in touch to send you exclusive event invites, market update information, news relevant to you and information about our products and services.

Please confirm if you are happy to receive these communications from us by ticking the box below:

At any time you can change your mind and opt-out of these communications via the unsubscribe link in any of our emails or by contacting unsubscribe@investecwin.co.uk.

For more information on how we use your data, please see our Privacy Notice.

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Disclaimer

Tax treatment is dependent on individual circumstances. This information is provided in good faith and is based upon our understanding of current tax law and HMRC practice, which may be subject to change in the future.

This article does not offer advice and the content and information about potential investments and services are designed for general use, and so cannot be considered personal to your circumstances or your financial position. It is important to obtain professional advice from an accountant or tax specialist before taking any action or making any decisions.

The value of investments and any income derived from them may go down as well as up; you may get back less than the amount invested.

 

Important information

The information in this document is believed to be correct but cannot be guaranteed. Opinions, interpretations and conclusions represent our judgment as of this date and are subject to change. Past performance is not necessarily a guide to future performance. The value of assets such as property and shares, and the income derived from them, may fall as well as rise. When investing your capital is at risk. Copyright Investec Wealth & Investment Limited. Reproduction is prohibited without permission.

Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.