Updated: May 2
So the hard work has paid off and you're building up cash reserves in your business, but you want to know how you can make better use of this money?
Here are 3 ways to invest your business profits:
1) Through a Stocks & Shares ISA
A Stocks & Shares ISA is a tax-efficient way of investing. All ISAs are individual accounts, so you would first need to extract the money from the business via salary or dividends into your personal name.
From there, once the money is in your personal bank account, you can invest up to £20,000 a year.
2) Through a Pension
A business can make direct contributions to a pension plan. This method is often the most effective way of transferring business profits to personal wealth. Pensions are advantageous from a tax point of view but currently can only be accessed from age 55 (moving to 57 in April 2028). Read our guide on how to save tax using a pension for more information.
3) Through a Corporate Investment
You may wish to keep the surplus cash within the business to be earmarked for a particular purpose. This cash can be invested through a suitable investment product but would be liable to corporation tax on any investment gains and to be released to you personally would mean extracting via salary or dividends. This one has a few more tax considerations so not as common as the first two outlined.
If you are considering one of these methods, we offer a free consultation. We will discuss the pros and cons of each one and the steps to take.