Client background
- The client has a well established and successful trading company, which also has a company sponsored pension scheme for its Directors and Shareholders with a net asset value of approximately £850,000;
- the company owned the property that the business operated from;
- this property was worth £900,000 (less than it was worth a few years ago) but it was thought that this economic mess wouldn’t simply become the norm and once we’d got out of it, the value would increase to its previous level and beyond;
- the company had total outstanding debt of £950,000 secured on the property, consisting of £450,000 for the purchase and improvement of the property and a £500,000 overdraft facility;
- the company had spent £500,000 – £600,000 on various improvements to the property over the past few years. However, the improvements did not increase the capital value of the property as the improvements were of a ‘cosmetic nature’ and were only of benefit to the current tenant;
- despite having a sound business, the client (and their bank) wanted to reduce their liabilities as much as possible whilst rates favoured doing so;
- they also needed to inject some cash to fund the company’s expansion plans.
This situation was picked up by the company accountant who knew of our unique skills, solutions and our refreshing attitude towards deploying them.
The challenge
In the swirling, never resting world of Financial Services where the various regulatory bodies police the busy shipping lanes and, to stave off boredom, constantly change the rules and introduce brand new ones, it pays to be a racing yacht rather than a dodgy super tanker with a drunk at the helm.
When you read the background, it’s not obvious what to do about this. In fact, most people probably wouldn’t even look at it as a problem or a challenge, but instead merely as the situation it was and one that would improve as the loan was repaid and property values increased, or at least returned to previous levels. Until then, business as usual. Well, we aren’t most people and fortunately for the clients, neither is their accountant. Let’s take another peek at the key issues:
- the company’s total debt of £950,000 was, as already highlighted, made up of £450,000 as the outstanding mortgage and £500,000 as an almost maxed out overdraft facility and;
- while the company wasn’t in trouble, it did, as already mentioned, need some cash and it wasn’t about to get it from the bank with a £500,000 overdraft;
- they were also paying huge amounts of Corporation Tax as a result of its current profitable trading position.
Our input
This might not be an everyday set of circumstances here, but isn’t it comforting that there is someone out there who can look at this, and not just clearly see where the client needs to get to, but know how to navigate that course?
Thanks to the expert knowledge of the clients’ accountant, we were able to work in tandem with them on the design of a solution to all of this.
The outcome
- We wiped out the company’s mortgage of £450,000;
- we cleared the vast majority of their overdraft of £500,000;
- we injected £500,000 of fresh liquidity into the company from the Pension Scheme to assist in its expansion plans;
- we massively reduced their Corporation Tax liability;
- we provided the Directors with a Pension Scheme that has a solid asset that in a few years will be worth in excess of £1,000,000 plus the existing assets;
- we reduced the remaining term of the clients’ outstanding mortgage without increasing the monthly payments;
- we helped the bank by reducing their exposure and improving the loan-to-value ratio.
The magic bit
Thanks to the considered opinion and specialist understanding of the tax system the accountant has, the sound financial advice and technical expertise provided by the client’s Adviser, along with our carefully structured processes and solutions, we put the client in a position where they no longer needed to pay out on unnecessary tax bills, struggle to find lines of credit and leave their single largest asset; their property, potentially exposed to creditors.
What is just as interesting is that we could tell you about plenty of additional benefits of this process but that’d be giving a little too much away just now. Instead, if this situation rings a bell or you like the fluid way that we can and do tack and gybe like a racing yacht and you’d like to talk to us to find out what we did and to see if we can help you and your clients, now and in the future, we’d prefer to fill in the blanks at a meeting.
