how to invest and pass down wealth

How Capital Security Companies can make the cash in your business work as hard as you do, tax efficiently 

With a Capital Security Company, you’ll be able to:

  • Invest excess cash generated by your business
  • Protect this capital from the trade of the business
  • Remain tax efficient by keeping the investment in a corporate structure
  • Ensure capital can be passed down to the younger generations tax efficiently

What is a Capital Security Company?

A Capital Security Company is a private Limited company which has been set up with the sole purposes of providing a vehicle with which to protect and hold investments, grow and manage wealth and where children or other family members can benefit in a tax efficient manner.

It is built on the same principles referred to as a Family Investment Company but with long term wealth planning in mind.

Capital security planning is built on building security first. Separating capital from a trading business helps to secure that value. If you are holding cash in trading business then there are a number of risks including:

  1. If there is a downturn in trade, excess cash is at risk
  2. If your business faces legal action then the money is at risk within the claim
  3. Holding significant cash in a business that inflates of the overall business value may result in losing tax benefits such as Business Asset Disposal Relief (for Capital Gains Taxes) or Business Property Relief (for inheritance tax purposes)
  4. It can restrict your ability to bring in new managers as part of a business succession plan

Family Investment Companies are build for creating an investment company that is designed for building family wealth in a central limited company.  To set this up it usually requires use of specific Inheritance Tax rules (IHT) to apply and also limit what can be contributed to the company.

With the Capital Security Company the main driver is securing company capital.  It does however provide additional tax benefits but these are not the main drivers to setting up the structure. Unlike a Family Investment Company we view any IHT benefit as an added benefit rather than the purpose of the planning. In our view this makes the arrangement much clearer that it is for a commercial arrangement, and not an act of tax planning. If HMRC views a structure as set up solely for tax planning then they can attack and unwind such structures.

In simple terms, a Capital Security Company is a company that is connected to your trading company, owning a minority stake in the business.  The company can have the same owners as the trading business or have additional planning added to meet the longer-term objectives of the business.

It can receive money from the trading company to protect the capital and enable it to be invested as you wish. The ownership of the company can be set up to enable the capital growth to be shared with your family in the future.

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Is this planning right for me?

Every personal and business situation is unique so we always recommend you speak to us before you go ahead with any structural and investment planning. However, there are some common reasons why we may recommend this planning.

This may be the right planning for you if:

  • Your trading business holds more than £500,000 in cash that is not needed for cash flow
  • Your business consistently generates more cash then you need to draw each year
  • Your trading business hold investments that are not connected to the trade of the business
  • You want to investigate plans for passing down wealth to family members in your lifetime
  • You have assets that you want to separate from the trade to help with a future sale of the business

Benefits & Features of Capital Security Company 

Benefits of Capital Security Planning 

  • Protects capital earned from future business issues
  • Provides a flexible alternative to pension investments
  • Allows access to income for you who will be investing in the company whereas a trust requires you to be excluded from future income
  • Prevents loss of Business Asset Disposal Relief (previously entrepreneur’s relief) if the main trading business is to be sold
  • Protects the main business being applicable for Business Property Relief for IHT purposes
  • Can provide an option for IHT planning

Features of Capital Security Planning 

  • Receive money each year from the trading business with no tax payable and with no claw back from a profitable trading company
  • Invest in most things from bitcoin to buildings and from fixed return bonds to Rolex watches.  You can put cash or assets into your capital security company allowing the creation of different share types and from there give the shares to your children/ family members whilst retaining the capital value of your assets
  • Retain control of your assets by still being a director and shareholder of the company
  • Combined with family shares or trusts

Capital Security Company in action… [Case Study] 

Recently, we helped a client protect over £1.5m in capital using a Capital Security Company. 

This mitigated the risk of losing their capital in case of a downturn or business issues. This has allowed them to free up capital to be invested in a range of ways to provide a passive income.

This was all done without triggering any significant taxes because the money remains in a corporate structure. 

Combining all taxes over the lifetime of this planning we expect that this will save over £900,000 in taxes.

The aim for the client:

  • Secure their capital outside of their main training company
  • Maintain as little cash as practical within the trading company
  • Reduce their future exposure to inheritance tax from the capital and investments they held

What we did:

We reviewed the client’s personal income needs, retirement and estate planning, and wills to provide a clear picture of their financial needs now and for the foreseeable future. This included a review of the quality and sophistication of the clients financial records to ensure that their business finance function would be able to support accounting for the planning we were seeking.

We then caried out initial calculations into what taxes would be triggered and payable on set up of the capital security company and what taxes the structure would save given the clients specific situation. In this case the planning would make a substantial net saving. This combined capital, income and Inheritance tax savings and were calculated net of taxes in set up and trust taxes estimated over the life of the structure.

In this case the planning involved utilising a trust for a minority shareholding. This was done so that the beneficiaries would not be aware of their ownership until such a time as was deemed appropriate by the trustees. It also provided a route where up to 50% of the capital value of the business would be kept out of the original owners estate.

We set out an action plan for implementation that was used by the client, the clients solicitors and ourselves to put this in place. We were then engaged to complete the work and worked alongside the legal advisers to put all items in place.

If you find any of the above relevant to your situation, we encourage you to reach out to our Strategic Planning Specialists for a free discovery session to assess the benefits of this planning for you and your business. We can then assist you in creating your capital security company to safeguard and grow your wealth.

Email or call 01474 853 856. 

How can I get started to protect my wealth in this way? 

Our comprehensive initial planning consultation and report provides you with expert guidance and professional insights tailored to your specific needs. This will include an initial meeting with you to discuss your unique situation and goals for the structure. It will also include a planning report with the potential options available to you and set out:

  1. The benefits and savings to be made from the planning
  2. A step by step action plan for implementation and running the structure in the future
  3. Forecast future taxes
  4. A tailored quotation for implementation of the plan and instructions for other professionals that may be required to aid the set up of the structure

Invest, protect and pass down your wealth tax efficiently 

If you find any of the above relevant to your situation, we encourage you to reach out to our Strategic Planning Specialists to assess the benefits of this planning for you and your business.

Email or call 01474 853 856. 

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