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Although the content of this article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.

Getting Started

Investing the proceeds of exit

When you come to sell, what will you do with the money you make?

Investing the proceeds of exit

After struggling to grow your business for years you’ve finally achieved your dream of selling it for millions. So, what should you do with the money to make sure you and your family can enjoy the benefits for many decades to come?

Steven Lea of the St. James’s Place Private Client team says the first step in protecting the value of your wealth comes before the business exit is signed, sealed and delivered. You may need professional advice to help you cover all areas of tax planning to make sure that you don’t pay more than you need to.

Once the sale proceeds are safely in your bank account you should think about what you are going to do with it. If you leave it all in the bank it will be secure but might grow very slowly, or even not at all, because of low interest rates and the effect of inflation. So, you should consider investing some of the money.

Taking advice

“You may have invested every single penny into your business and so don’t have a great deal of experience in making personal investments,” says Steven. “Now, almost overnight you might have £5m or £6m in that account. A professional adviser will be able to help you carefully manage this nest egg."

“Although you have sold your business you may decide to stay on or continue to work in some capacity so there is no immediate need for income."

"Conversely, if you have fully exited the business then you may need to replace the income you have lost,” Steven explains. “It is important to consider different types of tax wrappers, so you have the flexibility to draw your income tax-efficiently. You may also decide to gift part of your wealth to your children or grandchildren but would still like some control over the gift. The use of a discretionary trust could be considered. In addition, they are useful in reducing the burden of inheritance tax on your now very large estates.”

Investment classes

After this planning stage, a professional adviser can help you consider where the money should be invested to help meet your financial objectives. A key consideration before you invest is to determine your capacity for loss and how much risk you are comfortable with.

Selecting the right type of investments is also important to meet your attitude to risk. This could include diversifying across different asset classes such as global equities, government bonds or commercial property.

Another consideration is the amount to invest. Steven does not recommend investing all of the proceeds and says that it is advisable to keep some funds available on deposit for emergency to cover short-term expenditure and a capital reserve. "For example, recently an entrepreneur wanted to invest all his £3m proceeds from the sale of the business and then in two years draw on some of this money to start a new business,” he explains. “Following conversations with the entrepreneur, he agreed to keep sufficient money on deposit to meet his objective and to cover short term liquidity."

Age appropriate

Steven says some decisions will depend on your age. “If you have sold in your 40s you may not be as dependent on drawing an income because you may start a new business venture. At that age you might also not be ready to gift money to your children, so in this scenario, for some of the money you could consider investments which are very good for future tax planning,” he says.

“If you sell your business later in life in your 60s it is unlikely you will start another business and you are likely to want to draw an income from the proceeds to help maintain your lifestyle. The level of income you require will depend on your expenditure and this is something you should discuss with your professional adviser, so the appropriate investments can be selected to meet your needs."

Regardless of whether you require income or growth from your investments, when you invest you should do so for a minimum of five years to give your investments time to grow.

A pension could be used to draw income, but if you don’t need your pension you could leave it intact for your children to provide a tax-efficient form of inheritance. You may choose to take more risk with your pension pot because it will be invested for the longer term.

On the other hand, if you are thinking about planning for school fees you might want to take less risk because the moment when you will need them will be closer at hand.

Whatever you want to do with the proceeds of your sale, planning early is key and a St. James’s Place Partner will be able to guide you.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.