How does limited company switch from high charges Zurich to Vanguard?

[trackdaychamp]

Hi All, we paid for a financial review in 2019 and as part of that we invested 100k lump sum from my limited company in Zurich 60/40 plus 1,000 per month regular payments from same LTD company AND 12k from personal savings for each of the 2 kids all invested into the same Zurich 60/40. My statements have just come in and it shows growth (before tax) right now of 13% total for the 100k in that 4 year time period. Charges are listed on the letter as 1.53%

Since 2018 my pension investment via Conexim in Vanguard S&P500 has been going great and fees are 0.4% with growth over 4-5 years at 47%. I presume the advisor picked the most obvious "safe" 60/40 in case we needed the money back out in the short term. I much prefer the Vanguard ethos vs Zurich. We don't NEED the money now or in the short term and I'd like see pure equity return.

Any ideas on my intended move and how I do this or who I should call? I want execution only and focus on low cost

 

[Brendan Burgess]

a financial review in 2019 and as part of that we invested 100k lump sum from my limited company in Zurich 60/40 plus 1,000 per month regular payments from same LTD company

Forget about charges and performance. They are important, but the following are far more important questions to answer first.

On what basis did your financial advisor recommend a limited company to invest in a Zurich fund?

Did the financial advisor give you a written explanation for why he recommended that you leave cash and profits in a limited company?

Could you explain to me the corporate tax treatment of the profits in this fund and how you will eventually get these profits into your own hands?

Brendan

 

[Gordon Gekko]

There’s an element of apples and oranges too. The pension is long the US equity market. The corporate monies are 60% global equities and 40% bonds, so totally different. Is there something that necessitated lower volatility in the corporate fund?

 

[Fortune]

Forget about charges and performance. They are important, but the following are far more important questions to answer first.

On what basis did your financial advisor recommend a limited company to invest in a Zurich fund?

Did the financial advisor give you a written explanation for why he recommended that you leave cash and profits in a limited company?

Could you explain to me the corporate tax treatment of the profits in this fund and how you will eventually get these profits into your own hands?

Brendan

Likely to avoid the close company surcharge for leaving funds on the company

 

[joe sod]

The fact that fund is 40% invested in bonds is too high for our current inflationary environment, bond funds have been falling in value which has wiped out whatever gains there were from the equity part of your investment. Of course bonds did well since the financial crash , but this period is like the 1970s when bonds were terrible investments

 

[Brendan Burgess]

Likely to avoid the close company surcharge for leaving funds on the company

Could you flesh that out a bit more?

Are you saying that
1) it's a good idea for a company to retain profits and lots of cash.
2) Investing that cash in this product is a good idea.

Brendan

 

[Fortune]

Could you flesh that out a bit more?

Are you saying that
1) it's a good idea for a company to retain profits and lots of cash.
2) Investing that cash in this product is a good idea.

Brendan

If the funds were intended to be kept be the company for use at a future date, there is a risk of those funds suffering an additional surcharge tax. Putting those funds in a life assurance bond avoids that surcharge. The gains in the bond are taxed at 25%.

Is it a good idea for the company to retain funds? That depends on their plans for those funds.

Is investing in this product a good idea? It could be if the potential for investment losses is less than the tax surcharge.

It all depends on the facts of the matter.

 

[Brendan Burgess]

It could be if the potential for investment losses is less than the tax surcharge.

Now you have completely lost me.

But let's wait until we see @trackdaychamp justification for keeping cash in the company. I doubt if he was looking at the potential for investment losses.

Brendan

 

[Fortune]

Now you have completely lost me.

But let's wait until we see @trackdaychamp justification for keeping cash in the company. I doubt if he was looking at the potential for investment losses.

Brendan

I'm saying that you would consider the likelihood of making a loss on the investment (while still intending to make a gain), versus the tax saving of making the investment.

 

[trackdaychamp]

My understanding is that the financial advisor could see that the company was generating excess cash monthly/annually and our pension payments were being maxed out each year so he wanted us to invest some of the excess cash. My concern is that Zurich 60/40 seems to be sub par versus Vanguard 100% equities and the cost differential on fees is the nail in the coffin in my head. We don't need the money now or for a number of years. I can see that money staying in the limited company until I sell the business or fully max out my pension at the end if I'm not at 2.15m by then.

Does anybody have a different view? How do I access Vanguard from a taxable Investment front in Ireland?

 

[Brendan Burgess]

My understanding is that the financial advisor could see that the company was generating excess cash monthly/annually and our pension payments were being maxed out each year so he wanted us to invest some of the excess cash.

Sorry but this makes little sense.

It is usually wrong to keep cash in the company. So if you are doing it, you should have a written tax plan for it.

I suspect that your financial advisor didn't think much beyond how to maximise his commission.

Talk to your accountant and tax advisor and ask for a written plan. And make sure you understand it.

A lot of accountants simply produce the accounts and say "Well done the company made a profit of €100k and here is the tax calculation". But you need someone to say "With this level of profits you should take the profits out every year so that you are not taxed twice on the profits".

I see that you have already bought a commercial premises through the company.

800k of cash was sitting in the company. During lockdown 1, I got itchy feet on paying 30k a year in rent to commercial landlord so we used about half the cash to buy a commercial premises that we will move into after refurb.

Again, most advisors, would not support that strategy. The usual practice is for the company's owners to buy the property in their own name and rent it to the company.

You really need to sort out this macro picture and not fret the detail of charges on an investment you probably should not have ever bought in the first place.

 

[GSheehy]

@trackdaychamp

The exit tax regime is going to limit what you can do here with moving to another product or provider to avail of a different service or lower charges. IMHO the only time it makes sense to move savings/investment products is where you're at break even and there are no exit charges to consider.

If you want 100% equity then you'll probably have to look at something like 5*5 Americas or you could do International Equity or Indexed Global Equity (Blackrock) Funds.

The assignment of the savings plans to the kids (U18?) via annual small gifts tax exemption (?) means that you cannot do a fund switch.




Gerard.

www.saveandinvest.ie

 

[trackdaychamp]

Sorry but this makes little sense.

It is usually wrong to keep cash in the company. So if you are doing it, you should have a written tax plan for it.

I suspect that your financial advisor didn't think much beyond how to maximise his commission.

Talk to your accountant and tax advisor and ask for a written plan. And make sure you understand it.

A lot of accountants simply produce the accounts and say "Well done the company made a profit of €100k and here is the tax calculation". But you need someone to say "With this level of profits you should take the profits out every year so that you are not taxed twice on the profits".

I see that you have already bought a commercial premises through the company.



Again, most advisors, would not support that strategy. The usual practice is for the company's owners to buy the property in their own name and rent it to the company.

You really need to sort out this macro picture and not fret the detail of charges on an investment you probably should not have ever bought in the first place.

Thanks Brendan. I take your points. My intention now is to get out of the investment positions and move funds in company to pension now that PSRA limits have been removed

 

[T McGibney]

Talk to your accountant and tax advisor and ask for a written plan. And make sure you understand it.

A lot of accountants simply produce the accounts and say "Well done the company made a profit of €100k and here is the tax calculation". But you need someone to say "With this level of profits you should take the profits out every year so that you are not taxed twice on the profits".

Accountants should not be giving such blunt advice Brendan. Successful business owners usually know a lot more about their businesses and their companies than their accountants do, and should be wary of delegating future strategy to someone who just happens to be good at compiling accounts and advising on tax.

Yes, there are disadvantages to carrying excess cash within a company but that does not mean that a company should always denude itself of a precious resource either, especially when it's expensive tax-wise to do so.