Would appreciate some pointers

Zadumbreion

Hi all.

Following on from some comments I made in another thread, I thought it was appropriate to start my own and ask for some initial guidance. I am happy to put in the work to educate myself and have already started to do so - thanks to those who gave me some pointers in the other thread - but before I do so I thought it would make sense to do a quick sanity check to make sure I bark up the right tree.

I'm 55, married, two children currently going through University (one about to finish, already has a job lined up with a completely ridiculous salary so she's sorted and the other has 3-4 years left). We are in the process of selling our business which should net us around £2.2M after tax 75% of which should arrive upon completion in March (fingers crossed) and the rest which will be paid quarterly over the following 18 months. We are 50/50 shareholders and will each be able to utilise the £1M of business asset disposal relief. After 18 months we may remain with the business (anticipated salary £36K each) or the new owners may kick us out the instant the earn out finishes; we don't know (and they might not at this stage either). We plan to continue working somewhere for at least another 5-10 years or perhaps we could start another business - we built this one out of nothing and could in theory do the same again (the restrictive covenants would not prohibit that). My gut feel is that this could be a very low risk way of making money - but we might prefer to do something completely different, possibly in a context where we're actually doing some good for others.

We have no personal pension to speak of, we haven't ever set up an ISA of any sort but we are playing to pay off our mortgage with £200K of the sale proceeds (currently paying 1.99%). We will have £80K of ISA allowance to use up post completion.

We are both extremely risk averse, and are not looking for enormous gains. We'd like to beat inflation, obviously, but if we could derive something like £50K pa (extremely rough number) for life before running out of cash, that would probably do us fine. The children can have the house.

So from that point of view, I just wanted some opinions as to whether or not we should simply be looking at a small number of simple passive funds (for all of the reasons trotted out on this forum every day!) perhaps with a little more emphasis on income rather than growth - or if our risk averse / modest growth ambitions could be better satisfied through some other approach like - for example - property rental. Yields are low, it's illiquid and could be a pain BUT it seems potentially lower risk to me, having not looked into much yet (but having a close friend who swears by his rentals).

Any pointers or opinions would be greatly appreciated - as I said I'm happy to spend the time earning the knowledge but - especially given the short timescales - I want to make sure I don't spend ages looking at the wrong options. 

Thanks in advance...

eskbanker

Zadumbreion said:

We are both extremely risk averse

I'd challenge this for a couple of business owners!  Those who are genuinely risk averse would stick to employment by others, rather than wading into everything associated with establishing and running a company, so it might be worth evaluating your risk tolerance in a more nuanced manner, although it's entirely understandable that you'd now be at the point where you'd want to lock in gains made thus far, if that's what you mean.

Lack of pensions is something of an elephant in the room - again, owning a business without directing money into pensions is arguably quite a risk, in the sense of a missed opportunity to utilise significant tax benefits, but is it too late to do so now, prior to selling up?

Zadumbreion

eskbanker said:

Zadumbreion said:

We are both extremely risk averse

I'd challenge this for a couple of business owners!  Those who are genuinely risk averse would stick to employment by others, rather than wading into everything associated with establishing and running a company, so it might be worth evaluating your risk tolerance in a more nuanced manner, although it's entirely understandable that you'd now be at the point where you'd want to lock in gains made thus far, if that's what you mean.

Lack of pensions is something of an elephant in the room - again, owning a business without directing money into pensions is arguably quite a risk, in the sense of a missed opportunity to utilise significant tax benefits, but is it too late to do so now, prior to selling up?

Thanks for replying.

I take your point - but you could argue that the risks associated with competent people doing what they know and managing a business sensibly are extremely low! We know how to start and run a business, we are very competent in our chosen fields and have demonstrated the ability to put in the necessary hours and stay standing - where is the risk, especially if you've been through the cycle at least once already?

We could indeed take the current assets in the business and pay them into a pension (at least 2 x 3 x £40K worth) BUT I suspect the buyers would not be that excited about us doing so, especially since the acquisition is being funded by a bank. I haven't asked, but I can see that for several reasons there might not be much appetite for us doing that...?

Zadumbreion

eskbanker said:

Zadumbreion said:

We are both extremely risk averse

I'd challenge this for a couple of business owners!  Those who are genuinely risk averse would stick to employment by others, rather than wading into everything associated with establishing and running a company, so it might be worth evaluating your risk tolerance in a more nuanced manner, although it's entirely understandable that you'd now be at the point where you'd want to lock in gains made thus far, if that's what you mean.

Lack of pensions is something of an elephant in the room - again, owning a business without directing money into pensions is arguably quite a risk, in the sense of a missed opportunity to utilise significant tax benefits, but is it too late to do so now, prior to selling up?

And - sorry - yes we are seeking to lock in gains now. I had missed half the point of your question which was "why don't you just keep going". We are totally confident in our ability to start and run a business under normal operating conditions but there is always the small risk of some totally unexpected left-field disastrous event taking it all away. 

eskbanker

Presumably if you were to make belated pension contributions from the company, the sale price would be adjusted accordingly, but in any case you're unlikely to be able to use carry-forward for previous years if you weren't already in pension schemes.

However, even if the opportunity to direct company money into personal pensions has passed, it's still likely to be in your interests to feed as much as you can into pensions now, given the tax advantages....

El_Torro

I think your position is pretty clear cut, you should seek the advice of an IFA. This will be money very well spent.

Considering that you will soon be in possession of well over £1 million in cash, with little to no previous experience of investing, an IFA can certainly help.

They won’t just advise which investments to use, they will also advise on how to be tax efficient.

numbersrule

Zadumbreion said:

eskbanker said:

Zadumbreion said:

We are both extremely risk averse

I'd challenge this for a couple of business owners!  Those who are genuinely risk averse would stick to employment by others, rather than wading into everything associated with establishing and running a company, so it might be worth evaluating your risk tolerance in a more nuanced manner, although it's entirely understandable that you'd now be at the point where you'd want to lock in gains made thus far, if that's what you mean.

Lack of pensions is something of an elephant in the room - again, owning a business without directing money into pensions is arguably quite a risk, in the sense of a missed opportunity to utilise significant tax benefits, but is it too late to do so now, prior to selling up?

Thanks for replying.

I take your point - but you could argue that the risks associated with competent people doing what they know and managing a business sensibly are extremely low! We know how to start and run a business, we are very competent in our chosen fields and have demonstrated the ability to put in the necessary hours and stay standing - where is the risk, especially if you've been through the cycle at least once already?

We could indeed take the current assets in the business and pay them into a pension (at least 2 x 3 x £40K worth) BUT I suspect the buyers would not be that excited about us doing so, especially since the acquisition is being funded by a bank. I haven't asked, but I can see that for several reasons there might not be much appetite for us doing that...?

Would you not be able to pay into your pensions from the business whilst making a corresponding reduction ( except for the tax advantage ) in the amount you sell your shares in the business for? That way you gain the tax advantage whilst the new business owners do not lose out.

Zadumbreion

eskbanker said:

Presumably if you were to make belated pension contributions from the company, the sale price would be adjusted accordingly, but in any case you're unlikely to be able to use carry-forward for previous years if you weren't already in pension schemes.

However, even if the opportunity to direct company money into personal pensions has passed, it's still likely to be in your interests to feed as much as you can into pensions now, given the tax advantages....

We were enrolled in NEST so it would in theory be an option.

numbersrule

Zadumbreion said:

 we might prefer to do something completely different, possibly in a context where we're actually doing some good for others.

We ............are not looking for enormous gains. We'd like to beat inflation, obviously, but if we could derive something like £50K pa (extremely rough number) for life before running out of cash, that would probably do us fine.......

Any pointers or opinions would be greatly appreciated - as I said I'm happy to spend the time earning the knowledge but - especially given the short timescales - I want to make sure I don't spend ages looking at the wrong options.

Do you think you might wish to focus on ethical investing?

Zadumbreion

numbersrule said:

Zadumbreion said:

 we might prefer to do something completely different, possibly in a context where we're actually doing some good for others.

We ............are not looking for enormous gains. We'd like to beat inflation, obviously, but if we could derive something like £50K pa (extremely rough number) for life before running out of cash, that would probably do us fine.......

Any pointers or opinions would be greatly appreciated - as I said I'm happy to spend the time earning the knowledge but - especially given the short timescales - I want to make sure I don't spend ages looking at the wrong options.

Do you think you might wish to focus on ethical investing?

Haven't really thought about it. My gut instinct would be that right now I am more concerned about protecting this retirement fund whatever it takes, but giving back through our time and skills in the future.

Zadumbreion

numbersrule said:

Would you not be able to pay into your pensions from the business whilst making a corresponding reduction ( except for the tax advantage ) in the amount you sell your shares in the business for? That way you gain the tax advantage whilst the new business owners do not lose out.

Yes that looks possible on paper - a decent chunk of the sale consideration comes from net current assets (cash) and so I can't see why they would object to us taking some of that cash before completion. As you say they don't lose anything.