Best place for my money?

altyfc

Hi everyone

Myself and my wife (both aged 40) are the sole Directors of a cash-rich Ltd. company with around £200k in shares. I have always tried to make the full contribution to our cash ISAs each tax year - believing I should make use of this - although this has become increasingly difficult to do, without dipping into those reserves.

We also have two children and I try to make the maximum contribution into their Child Trust Funds each year. I have just checked that the amount I could contribute was still £1200 a year, but if I'm understanding things correctly I see it is now £3600.

So, as I understand it... in theory each year I could be contributing:

£5,340 into a cash ISA for myself
£5,340 into a cash ISA for my wife
£5,340 into a shares-based ISA for myself
£5,340 into a shares-based ISA for my wife
£3,600 into my first son's CTF
£3,600 into my second son's CTF

Total: £28,560

Obviously that's a lot of money to try to put aside each year!

What should be my first port of call / priority... the cash ISA?

Should I be withdrawing money from the Ltd. company to make the maximum contribution, bearing in mind that this will presumably then get taxed at a higher rate?

Thank you for any advice.

xylophone

Do you and your wife have pensions?

RosieBee_2

Hi,

yes for the Child Trust Fund the Government have raised the maximum limit to £3,600, equating it to the Junior ISA. but the Junior ISA in comparison to the Child Trust Fund is better performing with a much more competitive market due to the number of providers who have made a Junior ISA available.

While it is a good idea to try and save the maximum amount each tax year, this should only be done if it is affordable otherwise it may not be sustainable into the future

the cash isa just the cash junior isa will allow you to realise a return. the stocks and shares isa on the other hand will allow for greater gains, but this is at the expense of increased risk. the choice of cash or stocks and shares comes down to the risk preference you may have.

hope it helps

Rosie Bee

CLAPTON

whats the performance of the CTF
whats the performance of the S&S ISAs

what do you mean you will be taxed at the higher rate? on what?

do you own a property
is it mortgage free
do you make pension contribution from the company

what is you income ?

altyfc

Thank you everyone.

Do you and your wife have pensions?

No.

CLAPTON wrote: »

whats the performance of the CTF
whats the performance of the S&S ISAs

The CTFs are shares-based.

CLAPTON wrote: »

what do you mean you will be taxed at the higher rate? on what?

I meant that if I draw more money from the company, then this 'income' will be taxed at the highest rate.

CLAPTON wrote: »

do you own a property
is it mortgage free

Yes, and it is mortgage free.

However, we also have a holiday rental property with a mortgage of around £200K ON A low interest-only mortgage rate.

CLAPTON wrote: »

do you make pension contribution from the company

No.

CLAPTON wrote: »

what is you income ?

We tend to draw £35k each per annum (ie. the maximum level at the basic rate of 20%).

Hope all this additional information helps. Thanks again.

opinions4u

We tend to draw £35k each per annum (ie. the maximum level at the basic rate of 20%).

what about utilising your personal allowances?

Would paying dividends rather than salary be more tax / national insurance efficient?

Not wishing to disenfranchise your kids, but surely money should be channelled in to your retirement plans too.

I'd strongly suggest you talk to both a reputable IFA and accountant to establish better options for using the structure of your company more tax efficiently.

That's not to say your logic on the ISA / CTF side of things is flawed.

My instinct is that you are throwing away thousands of pounds a year.

altyfc

opinions4u wrote: »

what about utilising your personal allowances?

Would paying dividends rather than salary be more tax / national insurance efficient?

Sorry, I think I got that bit wrong about the £35k. The accountant does talk about dividends at the end of each tax year and, if I'm honest, it usually goes 'over my head'. When he sorts out my tax for end of Jan/beginning of Feb each year, he usually tells me to put some £s back in to the company (or less commonly to take more out!) in order to get the best tax advantage. Although I believe he acts in my best interest, I guess I really should make a point of understanding it more.

opinions4u wrote: »

Not wishing to disenfranchise your kids, but surely money should be channelled in to your retirement plans too.

Yes, I'm thinking the first place for any surplus has to be our ISAs.

Thank you for all your help. More work required by the sounds of it.

CLAPTON

It seem odd to have so little interest in the tax aspects of your 'income' but to be concerned about the tax efficiency of what you do with it.

as they say don't let the tax tail wag the dog.

atush

Personally, I do not know why you (and perhaps your acct) are so fixated on ISAs instead of pensions.

If your company paid into a pension for you each, not only would you yourself save tax and NI, but your company would too. Every 1000 of pension you 'buy' would only cost you 800 (or less if arranged via salary sacifice and no NI paid) and your company would have a cost to put against tax, plus would save their NI too.

It is very tax efficent to have your company pay into an executive pension for both of you, and you would do better than the equiv ISA due to the tax releif (which can be higher should you just be 'over' the 42.xK barrier into higher tax- then your opension contribs would be ony 600 per 1000 invested in the pension.

altyfc

I've never made regular contributions into a pension scheme as I didn't think that was the best place for my money. Problems with pensions have been well documented over the years. Instead, I was banking on independently looking after our future in that regard with personal savings/assets, regarding our savings and businesses as our "pension".

In the light of what you've said, I did a bit of searching and came across this: http://www.thisismoney.co.uk/money/pensions/article-1699680/Pension-vs-Isa-The-big-debate.html

Most of the comments, from what I can make out, atush, tend to favour ISAs more than they do pensions.

xylophone

http://www.thetaxguide.co.uk/selfadministeredpensionschemes.html
might be worth a read.
There is no reason why you should not invest in both pensions and ISAs.