Share trading account for Ltd company?

[willendure]

You will presumably want to extract that profit at some point, regardless of how it originated, so a fair comparison would require tax on dividends received regardless of origin (of the profit). If you want to MVL in future and receive a capital distribution, it is obviously important that your company has not been a CIHC. Depending of the level of capital gain, there may or may not be CGT to pay on gains made personally (although the CGT annual allowance has been slashed).

Thanks for your thoughts on CGT, MVL and the dividend tax I would incurr when taking the money out in the future. Made me think I need to run through a bit better why I want to do this, because a more sensible alternative might be to take it out and put it in an ISA (no allowance left this year, but next year and the year after), or just take it out now and invest it using a personal trading account. As I say, already up to the higher tax rate threshold this year, maybe some "headroom" to get some out without incurring 40% next year.

I have a safety net saved in the company accounts. This is roughly £50K and is the amount of money I need to survive without changing my lifestyle or expenditures at all for 1 year. It covers my mortgage and bills, some savings that go to my kids and discretionary spending, the amount the company will pay into my SIPP and the companies running costs which include a small mortgage on an office. I generally want to keep this money in the company, I already paid corp tax on it as its retained profits. If I need to use it, the part that will come out to me will do so below the higher tax rate, so the amount of tax I will pay on it will be really small, maybe as little as £2k. I am also working towards saving up a second stash of £50K, because the idea of taking a year out to do some fun an interesting stuff is really quite appealing! Maybe it will actually be 2 sabaticals of 6 months each, so the company will still be trading as usual in those years. Company turnover was about £110K last year.

Lower risk investments in short gov bonds or precious metals, should help preserve the value of my stash in the face of inflation. When the s**t hits the fan and central banks pull back rates, both are likely to see a nice bump in value too. Heck, I might even throw caution to the wind and place a small chunk of it in something riskier.

So there you have it:

Turnover from IT consulting: £110K
Investments (yielding 4.5% on govt bonds): £50K

Might eventually double to: £100K and turnover might drop to £55K some years.


What do you think on those amounts versus the risk of being classes as a CICH?

[jamesbrown]

No problem. If I understood you correctly, you essentially have a warchest of £50k and want to invest all of that warchest in low-risk investments through a corporate trading account, right?

Personally, I would not invest 100% of company assets (or even 50%), even though you are trading and the income from these investments would be small compared to your trading income. In principle, the relative significance of the trading vs. investment income would probably be definitive here, but I personally take a conservative view on tax issues and the way your assets are being used would be a factor in whether your company is a CIHC, as clarified in HMRC's internal manual:

https://www.gov.uk/hmrc-internal-man...anual/ctm60730

When 50% or 100% of company assets are invested and not available for supporting and growing the trade, I think it becomes harder to justify the company as being "wholly or mainly" engaged in a trade.

Also, for such small sums, it hardly seems worth the risk to me. You should be able to get a short-dated savings account (notice account or even easy access) that pays something in the 3.75-5% range. You're unlikely to do much better than this with low-risk investments. For example, the TG24 (22/04/2024) Gilt is currently paying around 5%.

I would stick it in a regular savings account and treat it as intended, i.e., your warchest. If you want to make riskier investments, I would withdraw the cash and use your annual CGT allowance or invest in an ISA, exactly as you say. YMMV.

[willendure]

Personally, I would not invest 100% of company assets (or even 50%)

I see, that matters too? The income from investing will be much smaller than from trade, lets say ~5% of 50K = 2500, versus 110K turnover from IT consulting.

When you say company assets, is that just cash? or all assets. Approx balance sheet at the moment is:

Cash: 50K
Property: 120K
Mortgage: -40K

Balance: 130K

You think its a good idea to keep any investments safely under 50% of 130K? or under 50% of the cash 50K?

I will run it past my accountant - but appreciate your thoughts anyway. Yes, a risker investment would be better to do with a sum taken out into an ISA.

A savings account at nearly %5 has its appeal, but also I don't think quite cuts it as an inflation or recession hedge. A mix of interest earning cash, bonds and metals would be a better position to be in.

[malvolio]

I see, that matters too? The income from investing will be much smaller than from trade, lets say ~5% of 50K = 2500, versus 110K turnover from IT consulting.

When you say company assets, is that just cash? or all assets. Approx balance sheet at the moment is:

Cash: 50K
Property: 120K
Mortgage: -40K

Balance: 130K

You think its a good idea to keep any investments safely under 50% of 130K? or under 50% of the cash 50K?

I will run it past my accountant - but appreciate your thoughts anyway. Yes, a risker investment would be better to do with a sum taken out into an ISA.

A savings account at nearly %5 has its appeal, but also I don't think quite cuts it as an inflation or recession hedge. A mix of interest earning cash, bonds and metals would be a better position to be in.

No doubt you've done the sums, but personal cash interest in an ISA is tax free as opposed to income from investments.

[jamesbrown]

I see, that matters too?

Yeah, see the link I provided in relation to "wholly or mainly", specifically:

• What are the assets (nature and amount) and to what uses have they been put?

As I said, the income paints a different picture, so you're probably fine, overall, on that point, but I wouldn't personally risk 50%+ of company assets in investments (but you've already done that). That said, I also wouldn't mix property investing with an IT business, rather split them into different companies. Hey ho.

[willendure]

As I said, the income paints a different picture, so you're probably fine, overall, on that point, but I wouldn't personally risk 50%+ of company assets in investments (but you've already done that). That said, I also wouldn't mix property investing with an IT business, rather split them into different companies. Hey ho.

Property: 120K
Mortgage: -40K

This isn't a property investment, its the business premises. Old fashioned, I know, but the company has an actual office where I go to work instead of getting nothing done at home!

I am curious though - what is the problem with mixing property with IT? Just that the business might be seen as CIHC because of the property investment? That is, it should be either 1 OR 2 in the quote below, not a combinations of 1 AND 2?


"
The legislation determines broadly that any such close company will, in turn, be a CIHC unless it falls inside at least one of several exclusions from CIHC status. Fortunately, those exclusions are widely cast in terms of practical application, including where the company exists wholly or mainly for the purpose of:

1. carrying on one or more trades on a commercial basis; or
2. carrying on a commercial letting activity.

"

[jamesbrown]

If it's business premises for your trade, no problem at all, but that is pretty unusual (hence my assumption).