Case Study: Business Owner

Client Overview:

This case study examines the journey of an entrepreneur who sought financial guidance after selling their original business. With limited investment knowledge and a substantial amount of cash that they wanted to put to work, they were focused on securing their family’s future. One client continued as a consultant to the company they sold, while the other had started a new business generating profits.

  • Sold business for £3m+

  • One client worked for the sold business on a six-figure salary; the other set up a new, profitable company.

  • Business proceeds were held in low-interest accounts, some exceeding the FSCS banking limits, which resulted in poor management and a significant time commitment.

  • The client sought flexibility and security to ensure a safety net should they not work again.

The Challenge:

The client accumulated significant cash from business earnings and the sale but was unsure how to manage it tax-efficiently. They were paying high-income taxes due to income, rental property investments, and interest on cash deposits. The administrative burden of keeping cash below banking limits further complicated their situation.

  • Lack of investment knowledge preventing decision-making

  • Significant sums sitting in cash, with a portion exceeding banking limits, leading to minimal growth and unnecessary default risk

Wealth Management Solutions:

We developed a comprehensive plan to address the client’s situation, which included:

  • Values and Goals Identification: Discussions focused on long-term aspirations and financial priorities, considering their current lifestyle and plans.

  • Risk Tolerance Assessment: To align with an appropriate strategy, a careful evaluation of the client's comfort with investment risk was conducted.

  • Financial Inventory: A detailed review of assets, including all pension and ISA pots across multiple providers.

  • Cash Flow Modelling: A thorough analysis of expected income and expenditure to aid in future planning.

Our Recommendations:

Salary Optimisation:

  • Advise the client to adjust their income structure, reducing reliance on their salary.

  • Sacrifice their full income through pension contributions, including utilising available carry forward for unused years. National insurance contributions were reclaimed via child benefit, which no longer needed to be repaid, as income fell below the £60,000 threshold.

  • Live off rental income and savings interest from cash placed in money markets.

  • Consolidate bank accounts by partnering with a provider offering access to over 45 banking institutions via a single platform.

Utilising Tax-Efficient Savings Wrappers:

  • Recommend diverting excess cash from the new business into a pension scheme through employer contributions. This provided several benefits:

    • Tax Savings for the Company: Employer pension contributions are tax-deductible, reducing the corporation tax liability.

    • Tax Efficiency for the Client: Contributions are made before corporation tax, avoiding income tax at the point of contribution.

  • Reclaim earned income for the client still employed through the sold company via a salary sacrifice scheme.

  • Utilise available ISA allowances and their child’s Junior ISA allowance of £9,000 and pension allowance of £3,600 gross, even while still in school.

Outcome:

By implementing these strategies, the client achieved significant tax savings:

  • Reduced Income Tax: The adjusted salary structure minimised income tax liability and significantly increased tax-efficient annual savings.

  • Lower Corporation Tax: Employer pension contributions reduced the company’s taxable income, enabling more savings and investments.

  • Long-Term Investment Strategy: Due to the family's youth, the client now has the best chance of outperforming inflation, achieving real returns on savings while maintaining flexibility.


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Disclaimer: This case study is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor for personalised guidance based on your specific circumstances.