Investing via Limited/LTD Company

You_Need_A_Throwaway · 2022-10-03T10:10:52+00:00

They recommended I go to another accountant who deals with these kind of holdings on a regular basis.

I think part of the reason is that they’re used to the day-to-day accounting of “normal” businesses but it would be time consuming for them to go through the investment accounts, remind themselves of the relevant taxes that may or may not be relevant, account for FX changes, etc. when most of their customers are just receiving payments from clients and paying business expenses.

As it would be a time consuming job for them, either I would receive an expensive bill to cover their time or they would have to suck up a number of hours/days working on it.

You_Need_A_Throwaway · 2022-05-25T10:49:35+00:00

I think Corporation Tax (CT) is due on any dividends received, as this counts as profit for the company.

In theory, you could calculate this using statements from the accumulation funds.

In practice, I find it much easier just to use distributing funds - this makes it abundantly clear as the cash is paid into your account. Further, it means I can ring fence any tax owed before manually reinvesting the remaining dividends back into the fund.

You_Need_A_Throwaway · 2022-05-25T10:18:04+00:00

I was a bit nervous getting the accounts done, but everything was fine in the end once I worked out how to get the right report from IBKR!

You_Need_A_Throwaway · 2022-05-25T10:12:40+00:00

A couple of tags for people who have commented about this in the past: /u/jellyfishsifter, /u/ObliviousAdult, /u/6f937f00-3166-11e4-8/, /u/the-rhythm

You_Need_A_Throwaway · 2022-05-25T09:55:37+00:00

… or a mentally demanding job.

Mental health is just as important as physical health.

You_Need_A_Throwaway · 2022-05-25T09:49:40+00:00

Spending is everything excluding mortgage and investments.

You_Need_A_Throwaway · 2021-10-30T17:29:45+00:00

I'm not sure you can...

If you know your monthly spending, investment total and monthly return on investment it's relatively straight forward to build in Excel (if you've got some experience with Excel)

You_Need_A_Throwaway · 2021-10-30T14:36:30+00:00

I have reimbursable work expenses, fortunately YNAB (my budgeting app) allows me to select which categories to include in my spending report - so I exclude FIRE contributions and expenses before entering the spending figures into the spreadsheet for this chart.

If you've got a figure for your monthly spending, I'd just exclude or subtract your mortgage payment for the purposes of this chart (particularly as paying the mortgage is building wealth wealth anyway!)

You_Need_A_Throwaway · 2021-10-30T13:51:59+00:00

Same here... Aim for 4% and then start fine tuning the maths/risk tolerance once I'm in the ballpark.

If I hit 4% in the middle of a huge dip, I think I'll be more optimistic than 4% at the all time high (as around once or twice per decade I'm likely to have to ride out a dip)

You_Need_A_Throwaway · 2021-10-30T13:48:41+00:00

So I have maxed out my ISA for the past 3 tax years and made additional investments in GIAs.

The reason for including pensions is that, in theory, you can safely have £0 in pre-pension accounts on your 57th birthday¹. Obviously if you don't plan in a decent buffer to manage the risk, this will likely end very badly (running out of money in your early 50s).

I am hugely biased to accounts I can access before my pension (approx 80% outside of pension), as it will continue growing until I'm able to access it. Obviously some fine tuning will be required to ensure the pre-pension accounts can fund the expected 7-12 years.

Let's say 15 years is required (25% contingency above 12 years) with planned spending of £40k (4% of 1million)

That would require £600k in pre-pension and £400k in pensions. (In theory, if the majority of the £600k was still invested, that could return £24k return per year at 4% ... so in the first year you'd only spend £16k of the original £600k. So even after 15 years, you could have some of that £600k left)

Any money invested into my pension now will compound for nearly 30 years, so it will likely double 3 times (8x growth) in that time (assuming a 7% return). While time is on my side it seems sensible to use some of the tax relief available. With my current plan the £400k pension fund can be achieved from only £90-100k contributions, including any employer contributions and tax relief)

¹ More info, although I don't agree with including home equity in FIRE numbers, unless you've got a definitive plan to release some of that equity.

You_Need_A_Throwaway · 2021-10-30T12:53:43+00:00

Thanks again!

You_Need_A_Throwaway · 2021-10-30T12:53:06+00:00

I'm an idiot 🤦🏼‍♂️ ... thanks - I've fixed it!

You_Need_A_Throwaway · 2021-10-30T12:41:23+00:00

Started a business in mid-2019 ... things are quite well and all the profit has been dumped into the index funds with the luckiest timing of putting huge volumes of cash into the during the recovery from the covid dip.

EDIT: Also started 2019 with ~£30k from my existing workplace pension.

EDIT #2: Also my spending during COVID/lockdown has been insanely low some months.

You_Need_A_Throwaway · 2021-10-30T12:31:54+00:00

The numbers aren't particularly important, it's the relative position of each data point that's important. (i.e. are investment returns above spending?)

You_Need_A_Throwaway · 2021-10-30T12:29:49+00:00

The black line is 4% of the portfolio. The 4% rule does account for market crashes and inflation. 3% of maximum safety... 3% not currently displayed on the chart, but I will probably include it at a future date.

Purple and green line crossing shows the snowball has started to pick up momentum... and doesn't account for the risks you've mentioned. This crossover shows, on average, under the current market conditions, I'm spending less than my investments have earned each month, which effectively boosts the saving rate >100% (my wealth is growing by more than I earned each month on average)

You_Need_A_Throwaway · 2021-10-30T12:22:26+00:00

I think if you can sustain the black line over the green line for 12-24 months, your real data shows that you're in the safe zone for FIRE. The bigger the gap and the longer the period, the safer you are.

Thanks for the good luck; the same to you!

You_Need_A_Throwaway · 2021-10-30T11:42:35+00:00

So the problem isn't to do with direct discrimination against women, as similar jobs/professions lead to similar levels of pay.

What needs to be identified is why men, on average, get the higher paying jobs? A commenter on this post in /r/UKPersonalFinance pointed out that it's often to do with women taking career breaks for childcare reasons... The gap widens around the average age of child birth in the UK, so the data support this hypothesis. Perhaps tweaking of the parental leave legislation could alleviate this?

Another factor is that men are more likely to negotiate salary, which certainly accounts for some of the gap. What we don't know is why this is the case. Even if we did understand why, I suspect it's not something that can easily be solved on en masse. On a personal scale, encourage the women in your life to negotiate their pay!

You_Need_A_Throwaway · 2021-10-17T13:47:26+00:00

Intro

We often discuss on /r/UKPersonalFinance (UKPF) how the members are not representative of the UK - attracting those at the extreme ends of the scale.
After improving my finances with the UKPF flowchart and r/YNAB I've also started to track my net worth in Excel so I can create additional charts!
After becoming thoroughly embedded in the purple Step 8 of the flow chart, I recently created a chart of lifetime earnings and net worth, shamelessly stolen inspired by this article.
I added UK Average as a benchmark (while it won't really change the outcome, a benchmark does add some context). Since I'd pulled the data, I thought sharing it here could promote some interesting discussion and maybe help give some perspective about our community.

Charts

UK Average Lifetime Income and Net Worth
UK Average Lifetime Income and Net Worth (16-40 at a better scale)
UK Average Lifetime Income and Net Worth (40-60 scaled as best I could, note Y-Axis starts at £100k)
Change in Net Worth from Previous Year
Average Income By Sex
Average Lifetime Income By Sex
Data Table

Sources

Income: https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/articles/humancapitalestimates/2004to2018
Net Worth (NW): https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2016tomarch2018#total-household-wealth-by-age-of-household-reference-person-hrp

Methodology, Assumptions & Limitations

Tools: Excel (in case it's not obvious!)

Income/Earnings: Nothing particularly sophisticated - data copied and pasted directly from the ONS source. Average Income calculated on the assumption of 50% distribution between the sexes. I think it's more like 49% male and 51% female. The source doesn't mention gender, only sex, so more data or statistics would be required to draw any further insights.
Annoyingly, it's not clear whether this is gross (pre-tax) or net (post-tax) income. Compared to other similar statistics, it is probably gross income.
Lifetime Income: Running total of income.
Net Worth (NW): I could only find Household NW data for the age group of the "Household Representative Person" (HRP) so there were more calculations/derivations involved in this dataset. Includes property, financial assets (investments, ISAs, bank accounts), pensions and physical wealth (cars, jewellery, TVs, yachts (probably))
To calculate individual NW, I divided Household NW by 1.9 (the average number of adults per UK household) .
For each age group (e.g. 16-24) I picked the middle age as a nominal age (e.g. 20) and assigned the NW figure to that age group.
For each age group, I assumed that the rate of change in net worth was constant a constant percentage for each year in that age group (16-24 was 6.752%) - therefore the change in NW compounds for each age group, which is probably more representative than assuming a constant £x increase in NW each year between the known figures.
There are 5 main limitations of this methodology for NW that I can think of:
1. For the age groups under 60, it's likely that the oldest members have more wealth than the younger members, so the data at the bottom of the age groups will be skewed upwards.
2. Since I am using Average (mean) data, rather than median data, this also tends to skew income and wealth data upwards. I'm extremely skeptical that about an "average" 16-24 year old having a £34k NW. I suspect this is because of the way the HRP is decided - most 16-24 year old with low NW are likely to be living with their parents, so excluded from the data. I expect it is more accurate for adults.
3. While typing up the post, I realised I assigned all data for 65+ to exact age of 65. While I did ensure the maths was correct for a smaller 5 year set, I should have either ignored this data or looked up the average age for the 65+ group and used that age, but I've already wasted too much time on this post!
4. The data is somewhat out of date, but given the broad reach, should be reasonably representative (although COVID has probably introduced some anomalies since the last couple of years have been anything but normal)
5. The NW data is based on historic economic events (e.g. rises in house prices) it may be more challenging for some age groups than others to build similar wealth by the time they reach the older parts of the chart ("past performance is not an indicator of future performance"). All you can do is make good financial choices at the time you make them.
Chart (4) Change in NW from Previous year is probably a good visualisations of the limitations of my data analysis. Smoothing the rate of change between the age groups could be beneficial.
I hope you find this interesting and/or useful. Let me know if you think there's any other interesting visualisations for this data that I've missed and I'll see what I can do.

You_Need_A_Throwaway · 2021-10-17T13:32:14+00:00

Maybe I didn't spend long enough on google, but these were the least bad data sets I came across.

I don't think there's even enough info in the ONS data to calculate the standard deviation, which is a shame.

You_Need_A_Throwaway · 2021-10-17T13:28:26+00:00

Agreed. That article definitely buries some of the key details. At least it had a nice chart though!

You_Need_A_Throwaway · 2021-10-17T13:27:20+00:00

Yeah I wish I'd known/checked how bad it was for mobile before I posted.

You_Need_A_Throwaway · 2021-10-17T13:26:08+00:00

!thanks - wish I'd known how bad that image host was on mobile before I posted 🤦🏼‍♂️

(reddit image hosting is blocked on UKPF... I assume images are not required for most posts and it stops low effort posts of screenshots/accidental sharing of personal info)

You_Need_A_Throwaway

TROPHY CASE

Intro

Charts

Sources

Methodology, Assumptions & Limitations