Paying Ltd Company Dividend to Invest in a Personal ISA

[JoJoGabor]

That's the flaw in your argument... unless you plan to give up work then in what circumstances will you have no further tax to pay? You will have to pay the 25% div tax at some point...

If you keep it in your business account until retirement then keep your income below the £43k odd threshold each year, there will be no more tax to pay right?

[minstrel]

An option could be Venture Capital Trusts (VCT's)? - these are certainly higher risk that a standard 'stocks & shares' ISA but there is upfront tax relief available.

Say you declare a dividend for £10,000 of which you invest £8,333 in a VCT.

The higher rate tax would be 25%, ie £2,500 but you would receive 30% tax relief on the investment of £2,500 so there would be no change on your overall tax bill.

You would also have £1,667 to spend as you wished!

Assuming all goes well with the VCT company, in five years’ time you will get your £8,333 back, free of tax – any gains made from the growth of the VCT, as well as any dividends paid out, are free of tax.

VCT's should really only be considered by the more sophisticated investor as the risks are certainly higher and should only form part of an overall investment portfolio.

Alan

+1

You could also consider EIS investments which have similar tax breaks, but only need to be held for 3 years.

[MrRobin]

If you keep it in your business account until retirement then keep your income below the £43k odd threshold each year, there will be no more tax to pay right?

Yes if that's your strategy then that is certainly the most efficient, but it's a long old game and remember that tax laws can change over time so be mindful

[Waldorf]

Yes if that's your strategy then that is certainly the most efficient, but it's a long old game and remember that tax laws can change over time so be mindful

I agree with that, politicians of all colours are looking at increasing taxes, so be careful, who would have predicted a 50% tax rate 5 years ago?

[Barley]

If you keep it in your business account until retirement then keep your income below the £43k odd threshold each year, there will be no more tax to pay right?

This is exactly the point I was trying to make and so asking the approach other have;

i.e. do you commonly remain under the 43k and continually retain the excess in the business.

I cant see that im going to do this as ive higher spending expectations, holidays, property, cars etc. Im not saying spend it all but am I the only one taking dividents of say £50k some years?

[d000hg]

Given that an ISA is tax-free and compounds each year then surely the effective rate of return over a number of years is greater than the (annual) rates quotes (currently approx 2.8%)?

Has anyone done the sums and determined whether it's worth getting the funds out of a business bank account (and hence taking the hit on CT)?

Dunno. So I take out £X and put it in an ISA at 3%. For this I have to pay X/4 in personal tax?
After N years, you have X*(1.03^N). When X*(1.03^N) = 5X/4 your interest gained equals the original tax paid. Which I think gives solving 1.03^N = 1.25, which has a solution at N = 7.5 years.

That was fun, wonder if it's accurate

[JoJoGabor]

This is exactly the point I was trying to make and so asking the approach other have;

i.e. do you commonly remain under the 43k and continually retain the excess in the business.

I cant see that im going to do this as ive higher spending expectations, holidays, property, cars etc. Im not saying spend it all but am I the only one taking dividents of say £50k some years?

Nope, I take the lot and spend spend spend!!! Now where's that Ivory back scratcher?

[MrRobin]

Dunno. So I take out £X and put it in an ISA at 3%. For this I have to pay X/4 in personal tax?
After N years, you have X*(1.03^N). When X*(1.03^N) = 5X/4 your interest gained equals the original tax paid. Which I think gives solving 1.03^N = 1.25, which has a solution at N = 7.5 years.

That was fun, wonder if it's accurate

I think it should be 4X/3, so N = 9.7, when rate = 3%

[jamesbrown]

I think it should be 4X/3, so N = 9.7, when rate = 3%

Correct, it is log (4/3) / log 1.03 = 9.73 years.