Business Protection

Very often Business Protection is overlooked. A recent study by Scottish Provident discovered that only 10% of SMEs have business protection.

A business owner is just too busy making profits in good times or fighting fire in a recession to look into areas that may have catastrophic effects on a business going forward.

There are three main areas of protecting a business, protection in the event that a key person dies or becomes critically ill, debt protection and succession planning following the death of a shareholder/partner/owner.

1) Key Person Insurance

Most businesses have tangible assets like premises insured; however business owners suffering a critical illness would have a greater impact on the business profits than a fire.

Who holds valuable positions in the business – this could be a founder who has the vision to drive the business or the sales person without whom you would not have a business?

Key person protection will enable the business to protect itself from the financial consequences of the key person’s death or absence from work due to long term sickness or critical illness.

A combination of protection plans may be used to protect the business in these circumstances and ensure your business can progress should these unfortunate circumstances occur.

2) Protection for business loans

Business Loan Protection is a type of insurance designed to repay all or part of a business’s debts upon death of the life insured. It is taken out to provide cover against death or a critical illness (where that option is chosen) that could adversely affect a business’s ability to repay its borrowings.

This type of insurance is often sold by a bank arranging the associated finance, however using an independent financial adviser who can research the whole of the market for the most competitive cover.

Business Loan Protection will ensure the business is protected against situations like these that could cause a business to struggle to carry on with its day-to-day operations and make debt repayments on time.

3) Partnership/Shareholder Protection

One of the great risks of a business partnership is that one of your colleagues may die, with his or her share of the business passing to their estate on death. That person may have little interest in the business or – at worst – may be hostile to your objectives.

Equally a partner who suffers a serious illness may want to retain the option of continuing in the business or be compensated for their exit from the business.

The safety net is a pre-arranged scheme to ensure the surviving shareholders have enough funds to buy out the interest in the business, or compensate the deceased’s dependants. Far too many businesses don’t have a succession plan in operation and it’s important to set this out from the start with a solicitor to make it clear what will happen in the event of a shareholder/partner/owner death.

A correct business protection will enable the survivors to purchase the deceased shareholding of the business. This should be set up with the correct legal arrangement such as a double option agreement that allows either party to buy and sell shares in the event of death.

If you have a business protection query, please call Elaine on 0161 233 0823, email elaine.porter@justdoproperty.co.uk

Investing in Property Funds - Elaine Porter

There are many different assets classes in which one can invest. However when looking at your portfolio and whatever your attitude to risk it is important that you hold assets across a number of different asset classes. The main ones are Cash, Property, Bonds and Equities.

Your attitude to risk will determine your weighting in each asset class. For example, as a cautious investor a large percentage of your investment portfolio would be in cash or cash based funds which would provide low risk and less potential for higher returns.

For the more adventurous investors, a smaller percentage may be invested in cash based investments; however these portfolios would have the potential for larger returns.

Whatever your risk profile it is important that you invest monies across different asset classes to ensure whilst one class is not performing you are making a return in other areas.

With Property there are different ways to invest, the normal route by buying and investing directly in residential or commercial property or by investing in Property funds.

One of the most common ways to invest in property funds is through pooled or collective and pensions investments whereby many investors contribute to one fund which is managed professionally.

Property funds aim to achieve growth by investing in portfolios of commercial premises from offices, factory, retail outlets & warehouses.

A few years ago there was a surge in investing in commercial property funds and marketing campaigns began to attract more. The commercial property market reached its height in June 2007.

However, when it was realised that Britain’s economy could not support soaring commercial property values, fund prices began to plummet and continued for most 2008 & 2009.

2009 saw recovery in the later part of the year and now investors have started to invest again into this market. In fact Property funds were the most popular sector for investors last October and November according to the Investment Management Association accounting for one sixth of new money invested.

In summary property funds hit a peak in June 07 and bottomed out in July 09, however they have come back on average 8.8% since July and investors now see the prospect of getting assets at a good price.
Remember past performance is not a guide to future returns. The value of investments and the income from them can go down as well as up..
For Independent Investment Advice please email elaine.porter@justdoproperty.co.uk

1) What are the differences between a personal pension and a self invested personal pension

Both a Personal Pension and A Self Invested Personal Pension allow the investor the advantage of contributing to a retirement plan with tax relief on contributions at the highest levels (i.e. a higher rate tax payer gets 40% relief).

The benefits for both are not available until retirement which can be from age 55-75 and then you can only access 25% as a tax free lump sum and the remainder to be taken as drawdown, left until age 75 or can be used to purchase an annuity.

The main difference on a Self Invested Pension is the ability to hold a wide range of invested assets under one umbrella. These include Individual listed shares and as highlighted last month commercial property.

However, as SIPPs can be a more costly contract many providers allow you the option of transferring from a Personal Pension into a SIPP at a later stage and taking advantage of the lower charging structure on a personal pension now with an option at a later date to transfer to the SIPP facility.

2) What are the advantages of investing in commercial property through a Self Invested Personal Pension.

With the current economic climate a lot of companies are either struggling to get the finance to purchase their commercial properties or want to release capital from the business in purchasing the property owned.

With funds available in a SIPP you can borrow 50% of the net value of these funds. (e.g. a £50,0000 available in a SIPP can part fund commercial property worth £750,000)

You can lease back the property to the business and income is paid directly to the SIPP thus increasing the future pension value.

Contributions to the SIPP (like any pension) attract tax relief at the highest level.

Your pension may benefit over time from an increase in Property Valuation.

3) What is the maximum contribution I can make into a SIPP?

The maximum SIPP contribution is either £3,600 or 100% of an individual’s income, up to a maximum of £245,000 per annum (for 2009/10 tax year and £255,000 for 2010/11). It is possible to contribute more than the annual allowance in certain circumstances such as in the year of retirement or by changing input periods. We would strongly recommend that advice is sought.

For Independent Financial Advice please contact me on elaine.porter@justdoproperty.com

If you would like to ask Elaine a question click here

A Self Invested Personal Pension puts the investor in control of their own pension planning. In other personal pensions and stakeholder pensions the investor can be at the mercy of the fund manager, however with a SIPP the investor has control and flexibility.

SIPPs can be sophisticated, complicated and costly, they can however, provide excellent tax planning solutions and provide an investor with more control over their pension planning through greater investment options.

A SIPP is most suitable for the self employed who enjoy good incomes, as administration costs are greater than ordinary pensions.

You can invest in a number of different asset classes through a SIPP, however purchasing commercial property as part of a SIPP portfolio can be particularly beneficial for purchasing ones own business premises.

Self Invested Personal Pensions like any pension are designed for long term retirement investment. A recent fall in property prices is seen as an excellent buying opportunity for long term gains on commercial property. You can invest in commercial property to either lease to yourself or a third party.

This fall in commercial property prices coupled with a lack of finance from banking resources has made buying part or all of your commercial property through your SIPP very beneficial to the business.

When a SIPP fund buys a commercial property it becomes free from capital gains tax and the rental income is paid directly to the SIPP allowing your pension fund to grow further.

You can also borrow to finance the commercial property purchase. You can mortgage 50% of the net value of these funds. (e.g. £100000 available in a SIPP can part fund commercial property worth £150,000.)

On buying commercial property with a SIPP it is always recommended to maintain a level of cash in your SIPP fund for unexpected property costs, mortgage payments, VAT or insurance premiums and property maintenance. This is dependent on each property.

You can also opt at any time to sell your property within the SIPP and the completed monies remains in your SIPP fund, however you must note that any estate agent fees, valuation fees etc must be paid from the SIPP.

In summary for the more sophisticated investor who is seeking to take control over their retirement planning and assisting the balance sheet of your current business SIPPs are an excellent opportunity.

For Independent Financial Advice please contact me on elaine.porter@justdoproperty.com

If you would like to ask Elaine a question click here