Spawning another company

[Company Man]

I'd like to start investing in land and property, possibly buy to let. Can I set up a new company for this purpose and use the profit in MyCo to invest in that company thus avoiding corporation tax ?

For example, can I set up MyCo2 a week before the first anniversary of MyCo and then invest MyCo funds into the MyCo2 business leaving little or nothing in MyCo that's liable to corporation tax?

I appreciate that MyCo2 will have to pay corporation tax but what if MyCo2 doesn't make any profit ? for example suppose MyCo2 uses all the funds to buy a property which it then sits on for 10 years ?

Can anyone advise ?

[Sockpuppet]

Both your companies may be investment companies which are taxed differently (read: higher).

This is probably specialist accountancy stuff.

On a side note BTL boat sailed a while ago.

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An investment will be treated as a Balance Sheet item. The profit figure in yourco1 will not be affected and therefore you cannot avoid CT.

[minstrel]

As David says, you can't offset property investments against Corporation Tax.

So, if YourCo made £100 profit you would have to pay 20% (rising to 22% in 2009) before you could invest the remaining £80.

Also as Sockpuppet says you could get classed as an investment company and have to pay higher CT.

Even if you weren't classed as an investment company, Ltd companies don't get a Capital Gains Allowance (currently £9,200) and CT is rising to 22% at a time when individuals CGT is falling (for many people) to 18%.

In conclusion, you can't avoid CT and you it will cost you more in tax to invest via the company, so invest as an individual.

[Company Man]

Thanks for your replies. As they say if it sounds too good to be true then it probably is.

I'll have to think of some other scheme.

[Sockpuppet]

Stocking and a sawn off?