Options for large amount of money in ltd company?

[syrio]

Very well done for being disciplined enough to save this sort of cash - An example for all of us.

How many years did it take to do this - Must be 30 + and you must have been very fortunate with equity investments

Well its been about 23 years contracting. I've only been investing the money since 2001, which wasn't a great time to start with most markets at an all time high. I invested in mostly FTSE 100 shares initially, but lately I've been changing to cheap tracker funds with more international diversification. I'd have probably done better if I'd had this approach from the beginning since the FTSE has gone nowhere over the last 15 years.

I've probably benefitted from the 2 major market drops that occurred along the way.

It does seem like a surprising amount of money, I'd estimate that contracting profits retained in the company would be something like £30k - £40k / year perhaps. The rest is capital gains and dividends.

[Iliketax]

Well, if I took it out the company I'd probably just re-invest it in much the same way as it is invested at the moment. And I don't really need the money out of the company. So keeping the money in the company seems like a reasonable option. This was always my original plan, to keep it as a warchest.

The downsides to keeping the money in the company are:

The costs of running the company, say £1200 a year in accountants fees, which is not really that significant when compare to the other options.

The minor hassle of the admin required in running a company. Not really much of a problem now, but I could see that in my very old age, I might start to struggle with this and prefer too keep things simple. But that's a long way off I hope.

Lack of access to the money, not really that significant since I don't really need it, I'm quite happy living off what I can withdraw yearly.

The possibility that the tax situation for CIHCs might become much more disadvantageous and I'll regret not taking the money out when I had a better chance. OTOH it might become more advantageous, who knows.

I'm not worried about my IHT situation, I don't have any dependents. If I did go for the Enterprise Investment Scheme option, then I believe money in there would avoid IHT.

Not needing the money makes things easier. If you can live on the money you can withdraw / make pension contributions, etc then great.

You obviously need to do the calculations but if you can keep investing gross (i.e. within the company) and get the returns taxed at a better rate than if you hold them personally then keeping the company seems a good idea. You would need to factor the running company running costs but I would be surprised if it could not be done for less than £1,200 per year, especially if the company just holds investments and gets the odd bit of income / capital gains and you do some or all of the accounts / tax / compliance yourself?

If you were to be investing in assets where you could get a huge gain compared with initial investment (and may need the cash on that gain) then it might be a good idea to take the cash out, pay tax on it and then invest personally as this stops tax within the company and on taking it out. Again, play with a spreadsheet to see this.

EIS is only a good idea if you are happy to take the investment risk on the underlying investment. Whether the tax reliefs (against income, CGT deferral, CGT exemption and IHT BPR) make sense is irrelevant if you lose all your money or the shares are way too illiquid.

You don't sound like you care about IHT, but if you were then investing in unlisted shares (and AIM shares count as unlisted) directly rather than through your company can make sense, but again only if you are happy that they would be a good investment.

There will always be a risk of tax law changing. Personally, I would not worry about that unless there is a particular exemption available now - so if you could claim ER now, I would do that.

[stek]

I'd put it all on red then I'd have £3.4m - wheeeeee!

[jamesbrown]

I have had a first meeting with an IFA which is where the Enterprise Investment Scheme option came from. I'll see what they come up with, and yes I think a second professional opinion is a good idea. Preferably with someone I'm paying directly for advice rather than working on a % of funds fee basis.

As you say ER is not really an option.

Sounds like you're on the right track. I agree with Iliketax in that there would be a strong motivation to close the company for ER were it available. That aside, personal investments are generally more tax efficient than corporate ones (annual CGT allowance, ISAs etc.). As it stands, there's probably little reason to close the company.

Incidentally, the scenario you present isn't unachievable for even the "average" contractor that extracts only what they need each year and is disciplined about retaining and investing the rest. Investing 3.3k per month for 23 years would only require a ~5% annual return to achieve 1.7M (notwithstanding CT, charges etc.), which is hardly outrageous.

[Waldorf]

It would depend on what you plan to do with the cash. If you wish to invest it to fund your lifestyle in the coming years then how about keeping the company and using it as your investment vehicle?

The dividends from the investments can remain in the company until you wish to take them out or even reinvest.

You should be able to get lower accountancy fees as you will not need to be VAT registered or have a PAYE scheme, just a few dividends each year, a small local accountant could do this if your existing accountant did not reduce their fees.

[syrio]

You obviously need to do the calculations but if you can keep investing gross (i.e. within the company) and get the returns taxed at a better rate than if you hold them personally then keeping the company seems a good idea. You would need to factor the running company running costs but I would be surprised if it could not be done for less than £1,200 per year, especially if the company just holds investments and gets the odd bit of income / capital gains and you do some or all of the accounts / tax / compliance yourself?

I think there is a slight tax advantage to having money in the company. I might be unable to avoid higher rate tax if I had all the money outside the company. The company running costs don't worry me too much, but perhaps reduce them, yes.

EIS is only a good idea if you are happy to take the investment risk on the underlying investment. Whether the tax reliefs (against income, CGT deferral, CGT exemption and IHT BPR) make sense is irrelevant if you lose all your money or the shares are way too illiquid.

Good points. I'm not tempted by the EIS idea at the moment. I may investigate further, but I think the risks outweigh the tax advantages for me at the moment.

[Alan @ BroomeAffinity]

I know of a guy who sold his company for a few million but before he did this he became resident in Gibraltar where I understand there is no CGT. I wasn't involved and don't know the veracity of this but it might be worth exploring. Especially with this cruddy "summer" weather [emoji1]

[syrio]

I'd put it all on red then I'd have £3.4m - wheeeeee!

I did have this other idea, which I didn't mention that you've just reminded me of.

If I used spreadbetting or CFDs or some other type of derivative I could go simultaneously go short in the company and go long outside it with my personal funds. Hopefully generating a loss in the company and a profit outside it. I believe spreadbetting wins are tax free, so I could have a tax free gain outside the company and a loss inside the company.

Of course there would be some costs involved in doing this, and I might end up making a gain inside the company and a loss outside it which wouldn't help much. Also I don't know if there might be some reason why I couldn't do this, or if HMRC might object to it.

[Underbase]

I did have this other idea, which I didn't mention that you've just reminded me of.

If I used spreadbetting or CFDs or some other type of derivative I could go simultaneously go short in the company and go long outside it with my personal funds. Hopefully generating a loss in the company and a profit outside it. I believe spreadbetting wins are tax free, so I could have a tax free gain outside the company and a loss inside the company.

Of course there would be some costs involved in doing this, and I might end up making a gain inside the company and a loss outside it which wouldn't help much. Also I don't know if there might be some reason why I couldn't do this, or if HMRC might object to it.

HMRC might not, but you have just described wash trading. It doesn't matter that one is your company and one is personal. The law is very very clear on this (I have a story about an investigation with the CFTC once, was cleared and that is for another day). But the law is very very clear, if you are in anyway in control of the purchase and the sale you are in big trouble if your intent was to never take any risk, even if the trade doesn't go the way you want.

IRS in the states also hates it, not sure if HMRC have rules, but I would be more worried about the FCA, SEC, CFTC the list goes on, and these days if you don't have a big bank to pay your fines they might just send you to jail to make an example.

This is just one of the rules for futures for instance.

A wash trade is a form of fictitious trade in which a transaction or a series of transactions give the appearance that bona fide purchases and sales have been made, but where the trades have been entered into without the intent to take a bona fide market position or without the intent to execute bona fide transactions subject to market risk or price competition. Parties who initiate, execute or accommodate transactions which they know, or reasonably should know, will achieve a wash result shall be in violation of Rule 534.

What does it mean to have accounts "with the same beneficial ownership" or "with common beneficial ownership" in the context of Rule 534’s prohibition on wash trades?

A2: Accounts with the "same beneficial ownership" include accounts with identical ownership as well as accounts of different entities that are 100% wholly-owned by the same parent.

"Common beneficial ownership" is more inclusive and includes not only accounts with the same beneficial ownership, but also accounts with common beneficial ownership that is less than 100%.

So in summary, I really would take a miss on this one a people far worse than HMRC will be on your case.

[DeludedAussie]

HMRC might not, but you have just described wash trading. It doesn't matter that one is your company and one is personal. The law is very very clear on this (I have a story about an investigation with the CFTC once, was cleared and that is for another day). But the law is very very clear, if you are in anyway in control of the purchase and the sale you are in big trouble if your intent was to never take any risk, even if the trade doesn't go the way you want.

IRS in the states also hates it, not sure if HMRC have rules, but I would be more worried about the FCA, SEC, CFTC the list goes on, and these days if you don't have a big bank to pay your fines they might just send you to jail to make an example.

This is just one of the rules for futures for instance.

A wash trade is a form of fictitious trade in which a transaction or a series of transactions give the appearance that bona fide purchases and sales have been made, but where the trades have been entered into without the intent to take a bona fide market position or without the intent to execute bona fide transactions subject to market risk or price competition. Parties who initiate, execute or accommodate transactions which they know, or reasonably should know, will achieve a wash result shall be in violation of Rule 534.

What does it mean to have accounts "with the same beneficial ownership" or "with common beneficial ownership" in the context of Rule 534’s prohibition on wash trades?

A2: Accounts with the "same beneficial ownership" include accounts with identical ownership as well as accounts of different entities that are 100% wholly-owned by the same parent.

"Common beneficial ownership" is more inclusive and includes not only accounts with the same beneficial ownership, but also accounts with common beneficial ownership that is less than 100%.

So in summary, I really would take a miss on this one a people far worse than HMRC will be on your case.

This is not a wash trade - He is hedging his position and any spreadbetting would be totally fine

The problem he has is how to ensure that the spreadbet wins whilst the company position loses. This is not easy and I cant think of a way to do this