LEGAL AND FINANCE QUARTER Wealth Management Edition IN PARTNERSHIP WITH:
SPECIAL FEATURE
Grant Thornton’s Dan Hartland and Maria Thomas report on key areas business owners need to consider
Retirement planning for business owners INSIDE FOCUS: FINANCIAL PL ANNING FINDING PROFESSIONAL ADVISERS PREPARING FOR RETIREMENT
Bringing clarity in uncertain times The world is in a constant state of flux, creating uncertainty, from Brexit to the recent US presidential election, but with this comes opportunities. At Grant Thornton we invest time and effort in getting to know you, your family, your businesses, your aims, the responsibilities you feel, the legacy you wish to leave. We can help you to plan for your retirement with greater clarity and embrace opportunities, connecting you with the people and networks that can help you to achieve your ambitions, both within Grant Thornton and also our wider networks. We’re here to make a difference.
To find out how we can help you, contact us today Sue A Knight Partner, Entrepreneurial Private Client T 0121 232 5167 E sue.a.knight@uk.gt.com Dan Hartland Partner, Entrepreneurial Private Client T 0121 232 5161 E daniel.hartland@uk.gt.com
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SPECIAL FEATURE Wealth Management
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Charting a personal financial planning roadmap Entrepreneurs can be so focused on looking for the finance to start and grow their businesses, or the funds to expand, that their own unique, personal financial needs can fall far down the priority list says Andrew Porter, President, Birmingham Committee of the Chartered Institute for Securities & Investment (CISI) Running a business, and bringing an idea for a business to fruition, is hard graft. Entrepreneurs can be so focused on looking for the finance to start and grow their businesses, or the funds to expand, that their own unique, personal financial needs can fall far down the priority list. It is important for entrepreneurs to take control and focus on realistic goals, for their own personal financial situation, rather than allowing a crisis to develop. Financial planning is a process which can help any entrepreneur focus on their own personal finances – thereby allowing you to realise your dreams at the end of the financial planning process, following which you will have a sense of achievement for yourself and your business. We all need a personal financial roadmap and as an entrepreneur you are often so busy running your business on a day-to-day basis, that the importance of designing this roadmap can be forgotten. Setting goals is key to this process. The goals for you and your business might be realistic in the context of your circumstances eg it could be as straightforward as ridding yourself of debt within a specific number of years. Or your goals could be more complex and relate to retirement, to changing the direction of your business and making provision for your family. If you are having trouble focusing on what you really want to do, consider the following: • If you knew you would die tomorrow, what would you most regret not having done in your life? • If you knew your life would end in a year’s time, what would you most like to do in the time available? • Similarly if you knew that you had 10 years to live, what would you like to achieve in the years that you had remaining?
Writing down these goals and dreams is an essential process which will allow you then to devise more than one goal for the: • Short term: to be achieved in the next 5 years • Medium term: to be achieved in the next 5-10 years • Long term: more than 10 years. Calculating your net worth, understanding your income and expenditure and analysing what you spend are essential elements of the financial planning journey for entrepreneurs. In addition, a CISI qualified CERTIFIED FINANCIAL PLANNERTM will be able to help you take a responsible approach on how to expect the unexpected, by looking at setting up an emergency fund, life/ health insurance and a will. Saving and investing are critical elements of any entrepreneur’s financial life. Delegating this aspect to people you can trust, who have proven expertise, is paramount. Wealth managers can help you, for example, manage a properly diversified portfolio that will ensure the wealth you have worked hard to create with your business is preserved and maximised. A qualified wealth manager can also help you with estate and succession planning. When looking to identify a wealth manager, qualifications count but so does relevant experience. A wealth manager who is a member of a professional body will have to demonstrate they have the relevant knowledge to pass tough exams and will have to sign up to a robust code of conduct. Their professional body will require them to undertake audited, annual continuing professional development,
Andrew Porter, Chartered FCSI which ensures that the wealth manager keeps their knowledge relevant and up to date, which is absolutely essential in the fast changing world of financial services. It is recommended you check out the background of your financial planner and wealth manager to make sure they have experience working with clients who have a similar profile and objectives to you as an entrepreneur. Do check that the professional you are thinking of working with is authorised and regulated to give financial advice by the Financial Conduct Authority (FCA). It is also important to ensure the person you have chosen has an exceptional support team. Are they profitable and debt-free? You want to be working with a firm of financial planners or wealth managers (or an individual) who will be around for the long term. Finally, people find that they work better with people they respect and like. This is a very personal point, but a crucial one. Choose a professional you like as a human being. Skills, qualifications and experience are important but as you will be discussing a lot of very personal issues about you and your business, likeability is key.
“Saving and investing are critical elements of any entrepreneur’s financial life”
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PROFILE Personal Finance Society
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Time to seek professional advice? There has never been a more important time for entrepreneurs to trust professional financial advice. Mark Hutchinson MBA Head of Marketing at The Personal Finance Society explains why Today’s low interest rate environment is driving many investors to seek out higher returns. However, there are a couple of problems; firstly investors are often uncomfortable taking the necessary risk to drive potentially higher returns, and secondly, a growing number of unregulated investment scams are targeting sophisticated investors. For entrepreneur investors there are usually added tax complexities that impact investment decisions too. Specialist income and capital gains tax reliefs and exemptions are available and the Government’s recent pension freedoms have created flexibility and new opportunities. HMRC recently reported a 22% increase in capital gains tax receipts to £6.9 billion, overtaking their yield from inheritance tax (£3.8 billion over the same period). It goes without saying that there are a range of financial planning strategies that might help to reduce such tax burdens. TIME TO SEEK PROFESSIONAL ADVICE? There has never been a more important time for entrepreneurs to trust professional financial advice. For many people their perceptions of financial planning are only just beginning to reflect the reality of a profession that has undergone tremendous change in recent years. The transformation has come from both regulators trying to better protect the public but also from professional financial planning businesses that are truly putting customer interests and needs at their core. SO, WHAT’S CHANGED? For several years minimum qualification standards have been mandated by the regulator, the Financial Conduct Authority. Professional advisers also now need to hold an annually renewable Statement of
“Chartered Financial Planners can offer a more sophisticated financial planning service. “
Mark Hutchinson Professional Standing, which confirms that they are authorised, meet the required qualification standards, carry out essential professional development and commit to a code of professional ethics. Commission is also now a thing of the past for professional advisers with charging structures fully transparent and not contingent on a product sale. CHOOSE CHARTERED Many advisers have gone beyond the regulatory minimum and more than 5,300 are now Chartered Financial Planners. Chartered Financial Planners have passed a suite of degree-level professional qualifications, demonstrating both knowledge and application, and a minimum amount of practical financial planning experience. Chartered Financial Planners can offer a more sophisticated financial planning service. Finding a professional adviser who you can trust If you have yet to employ the services of a professional financial planner I think you will be pleasantly surprised by the experience. Financial planning is now a lot more than finding you the right pension. In fact products are generally now a
deliberate afterthought. Modern financial planning is more holistic; it’s probably closer to financial coaching. A good financial planner will help you achieve your life goals by putting a financial plan in place and reviewing it as your circumstances change. They can help you find the best way to protect you and your family, your business and offer strategies for maintaining your lifestyle when you retire. They will do this by considering the impact of a range of financial scenarios for you and your business, helping you to decide when key milestones are achievable. An adviser I spoke to recently had just given a client the confidence to retire five years earlier than he had expected, which was a huge relief as he had become more and more disenfranchised from the business over the last couple of years. If you don’t currently work with a professional adviser the Personal Finance Society, the professional body for financial advisers, recently launched the UK’s largest online directory of financial advisers with valid Statements of Professional Standing. It independently validates professional qualifications - visit www.thepfs.org/ yourmoney to find a list of accredited advisers close to where you live or work. It also offers tips on working with a financial adviser and how to prepare for your first meeting. Irrespective of whether your focus is on accumulating wealth or protecting wealth that you have built up over many years (or for generations), adding a financial adviser to your professional network will help you, your business and your family focus on the goals that really matter; and they will help you make them a reality.
T: 020 7417 4468 E: mark.hutchinson@thepfs.org
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PROFILE Grant Thornton
Retirement for the business owner Preparing for retirement can be emotional and complex, combining a need for financial security and embracing a new lifestyle. For the business owner the position is multiplied and requires much greater thought and planning for both their personal transition and that of their business. Entrepreneurial Private Client partner Dan Hartland and corporate finance director Maria Thomas at Grant Thornton in Birmingham look at some of the key areas a business owner needs to think about when contemplating retirement and what this will mean for them and their business.
1 SO WHAT IS THE PLAN? Often advisers will refer to the retirement of key shareholders in a business as “succession”. Whilst “succession” can mean a multitude of things, it typically encompasses two key aspects: firstly it considers the successful continuance of the business, typically under different
ownership; and secondly it considers ensuring the financial security of the retiring shareholder through realising value they have built up in the business. Both of these aspects can be addressed in a number of ways and a key first step in any successful succession plan is to identify what it means to the individual shareholder concerned. Whilst every succession plan is as bespoke as the individuals and businesses they relate to, we will consider the three key plans that we see most often, namely the buyout of the business by management; the sale of the business to a third party and the passing of the business to the next generation. In all of these scenarios the name of the game is making yourself dispensable; however, how the game is played might be very different and we typically recommend a three to five year plan to ensure a successful succession. 2 MAKING YOURSELF DISPENSABLE! In the buy-out option, balanced management teams are critical to both equity and debt funders who will likely feature here in facilitating this transition of ownership. Management teams with experience of dealing with such third parties will be invaluable by increasing the likelihood of appetite to fund and support the management team. Whilst it involves similar preparation, where a sale of the business to a third party is contemplated, the dynamic and mind-set of the management team does take on a different perspective. In the buy-out scenario, management are incentivised by the prospect of owning the business. In contrast, the sale option involves the business owner receiving the main economic benefit. Therefore the implementation of a targeted incentive scheme, where management are rewarded alongside the key shareholder, works well to align
PROFILE Grantå Thornton
both parties’ interests in achieving the maximum result. Perhaps the most difficult scenario can be family succession and ensuring that open and honest conversations are happening between the generations. It is not uncommon for the next generation to feel an obligation and expectancy to carry on with the family business and for the current generation to feel an obligation to give the next generation the opportunity to do so, but with a reluctance to let go of the reins for a variety of reasons. This halts decision making and prevents the business from taking the necessary steps that may ultimately provide the family with a real opportunity to benefit from all of the options. This may also affect the value of a business. We have witnessed successful family owned businesses recruiting non-family board members to assist in maximising the options available, leading to both buy-out and sale opportunities that have created wealth for the wider family that may not have previously been achieved. The option of family succession always remains, but it is interesting how often the answer is a sale when the generations speak openly! 3 RUNNING THE BUSINESS One of the key reasons it is important to establish the preferred succession plan at an early stage is that this may have a significant effect on the way the key shareholder runs the business in the period up to retirement. Passing the business on to the next generation may mean a focus on generating secure revenues and transitioning relationships over time but less of a review of the external market and position of the business. However, a trade sale may mean a far more strategic approach is taken. By understanding the market and recent deals it should be possible to understand what will be attractive to likely buyers and which aspects of the business may generate most value. This may affect investment decisions, potential carve outs of certain areas and positioning in the market, through to how the business presents its financial statements to ensure that the business, whilst is strategically attractive, can also stand up to robust questioning in due diligence. 4 FINANCIAL SECURITY Of course, ultimately the objective will also be to secure the business owner’s financial position. This is a key consideration and, again, will differ
depending on the strategy. From a tax perspective, with the right structuring any of the above strategies can deliver a substantial capital sum that is subject to the lower rates of capital gains tax, with business owners targeting a 10% tax rate on proceeds received, up to a lifetime limit of £10 million. It should be noted that this position is often achievable but not always achieved, and it is recommended that advice is taken at least 12 months before an exit is envisaged to avoid disappointment. Clearly, the most straightforward position is a trade sale. This will typically deliver not only the best value, but often the most cash up-front. Passing the business to the next generation or a management buyout may need to be funded partly by the exiting shareholder, with such funding being repaid out of the profits of the business, often over several years. This leaves the owner more dependent on the future success of the business. However for high growth businesses, the prospect of retaining some equity or loan notes within the business can offer an opportunity for a further return on this investment, having derisked through the initial transaction. A common misconception is that leaving the
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business to the next generation is a purely philanthropic exercise. Despite the connected party element, H M Revenue and Customs will often accept, through advance clearance, that passing a business to the next generation via a Newco structure in return for cash and loan notes, to be funded from the future profits of the business over a number of years, can be taxed as capital. This can provide the retiring shareholder with a very tax efficient cashflow to help fund their retirement, replacing dividends and salary with capital sums which are subject to the very favourable capital gains tax rates mentioned, and without overly burdening the cashflow position of the company. 5 SUMMARY So yes, preparing for retirement as a business owner is both emotional and complex. It requires key decisions to be made at an early stage to ensure a smooth handover of the business to a capable management team, that the business has the right strategy to maximise the value on exit and, to the extent that the exit relies on future revenues, to ensure that those revenues are achieved.
“A key first step in any successful succession plan is to identify what it means to the individual shareholder concerned”
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PROFILE Lodders Solicitors
Lodders launches family law service The latest in a string of senior hires by Midlands law firm Lodders heralds the launch of a new family law service at the firm’s Stratford upon Avon office Experienced matrimonial law specialist Christine Williams has joined Lodders as a Senior Associate, marking the creation for the firm of a new dedicated family law practice in Stratford upon Avon. This follows Lodders’ appointment of Partner Barbara Jordan and Associate Erin Sawyer to spear-head the launch of the family law team in the South West. For individuals faced with dealing with a relationship breakdown, the new Stratford team of family and divorce law specialists represents a fresh alternative to a firm based in the glare of the city lights. Lodders offer specialised legal expertise, and a discreet, friendly, efficient service. For Christine, the move to Lodders represents a return to the Midlands – she has been based in London for many years where she held several senior roles, most recently managing the Matrimonial Department of a law firm in the West End. A member of the national organisation of family lawyers, Resolution, Christine’s expertise covers all aspects of matrimonial and relationship disputes including prenuptial agreements, separation deeds, civil partnership dissolution, divorce and financial proceedings and children’s cases under the Children Act. “This is a great opportunity to play an integral part in creating, developing and establishing a specialist family law department at Lodders’ Stratford office, and providing top quality, city firm, legal advice and experience, from a discreet, rural, provincial location,” says Christine. “When you are facing the breakdown of a relationship, you need a law firm that can combine in-depth legal knowledge with an outstanding level of client care. Our team understands that divorce can be a difficult and often painful process, and are committed to putting clients first and minimising the stress caused by divorce. “Not only does the family law team and its specialist divorce solicitors deliver excellent, thoughtful legal advice and the technical innovation clients would expect,” she adds, “our Warwickshire location away from the ‘city lights’, means our discreet, friendly and highly effective legal service is available with the utmost privacy.”
On the 12th day of Christmas The stresses and strains of Christmas, sadly often herald a point of no return for many married couples and their relationship. The pressure on finances, to have a happy and fun-filled festive season, and spending an unusual amount of time together, can make them feel that the only New Year resolution in their sights is separation. Here, Christine offers some tips and advice on how to avoid needing Lodders’ divorce services: C – Communication with each other is key H – Herald all new ideas of change from your partner with enthusiasm R – Roar with laughter as often as you can I – Involve in your lives, the people who are most important to you S – Savour and cherish memorable moments together T – Travel together as much as you can M – Make light of the trivia in life A – Always think of the outcome before engaging in an argument S – Sing like nobody is listening. If all else fails then please contact Lodders’ new family law solicitor, Christine Williams.
Family lawyers at Lodders offer much more than tea and sympathy
When you are facing the breakdown of a relationship you need a law firm that can combine in-depth legal knowledge with an outstanding level of client care to help you secure the best possible outcome.
Stratford upon Avon office 01789 293259 01242 228370 Cheltenham office Henley in Arden office 01564 792261 www.lodders.co.uk
@LoddersLawyers
Through the appointment of Christine Williams at our Stratford upon Avon office, Lodders can now offer the full range of relationship and family litigation services in the Midlands and Warwickshire. Supportive, determined and focused, Christine and her team put their clients first. When resolving disputes with divorcing spouses, former partners and co-habitees they will always secure the best possible outcome in all circumstances.
Christine Williams Senior Associate in family law at Lodders’ Stratford upon Avon office
solicitors
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XY TXCRXYX bqlive.co.uk
A changing property landscape With a raft of recent changes for residential property owners, and more anticipated in the coming months, Julia Rosenbloom of Smith & Williamson, the accountancy, investment management and tax group, highlights some of the key issues to consider. Stamp duty land tax (SDLT)
CGT for non-UK residents
Review your position
Since 1 April 2016, a 3% SDLT surcharge has applied to the purchase of a UK residential property if the buyer already owns residential property in the UK or elsewhere. The surcharge applies if, at the end of the day of purchase, the buyer also owns any interest in another dwelling. A refund of the surcharge is potentially available if that other property is the buyer’s principal residence and it is sold within three years. There are special rules for trust and company purchases.
Non-UK residents (including trusts and companies) who sell UK residential property are now liable for UK tax on gains that have accrued on it since April 2015. Generally, non-UK residents will need to complete a special tax return and pay any tax due within 30 days of the sale of the property. Principal private residence relief may be available.
If you own property, we recommend that you review your position to ensure that you fully understand the impact of the changes, and investigate whether there are any steps that you can take to mitigate this.
Finance restrictions From April 2017, for individuals and trusts, there will be a restriction on tax relief for the finance costs incurred in relation to residential buy to let property (unless qualifying furnished holiday let). Relief will be restricted to the basic rate of 20%. The restrictions will be phased in over four years.
Capital gains tax (CGT) CGT rates have been reduced to 10% and 20% as from 6 April 2016. No reduction in rates applies to the sale of residential property, however, where the rates remain at 18% and 28% respectively.
Proposed inheritance tax (IHT) liability on UK residential properties It has been proposed that from 6 April 2017, all UK residential property, whether held directly or indirectly, will be potentially liable to IHT. This means that, unlike the present position, such property owned by a non-UK company, or trust and company, will be within the scope of IHT, unless the company is widely owned, e.g. a non-UK investment or unit trust, or quoted company.
Profits from trading in and developing UK Land From March 2016, all profits arising from trading in or developing UK land are subject to UK tax. This will affect overseas property developers who were previously outside the scope of UK tax.
Autumn Statement 2016 Please note this article was written prior to the Chancellor’s Autumn Statement announcement. If you have any queries regarding the changes please do not hesitate to contact us. For a full analysis of the Autumn Statement please visit www.smithandwilliamson.com
Julia Rosenbloom Head of Private Client tax Services, Birmingham t: 0121 710 5200 e: julia.rosenbloom@smithandwilliamson.com
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing. The tax treatment depends on the individual circumstances of each client and may be subject to change in future. Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
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Local presence. Global expertise Bespoke financial services as individual as you. At Investec Birmingham, we work closely with our clients, getting to know their specific needs intimately to create bespoke financial plans. Our specialist team delivers a full range of wealth management services as well as a dedicated Private Bank offering. We pride ourselves on our entrepreneurial spirit, and strive to offer solutions as distinctive as our clients. Please bear in mind that the value of investments and the income derived from them can go down as well as up and that you may not get back the amount that you have put in. To find out how our out of the ordinary offering could benefit you, please contact: Adrian Quin Investec Wealth & Investment adrian.quin@investecwin.co.uk 0121 232 0700 investecwin.co.uk
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