Drawing dividends over higher tax threshold - should I?

[minstrel]

VCT and EIS investments are another option. They are relatively high risk medium/long term investments, but you can get a 30% immediate tax rebate and with EIS you can defer/offset capital gains tax.

Distribute £30k dividends above higher rate threshold and you would be liable for £7.5k income tax. Invest £25k in a VCT/EIS and the 30% income tax relief will offset your £7.5k tax bill.

You end up with an investment worth £25k, £5k cash and no additional tax to pay.

[MrRobin]

VCT and EIS investments are another option. They are relatively high risk medium/long term investments, but you can get a 30% immediate tax rebate and with EIS you can defer/offset capital gains tax.

Do you have personal experience with VCTs? Who did you invest with?

[minstrel]

Do you have personal experience with VCTs? Who did you invest with?

I've made some smallish investments with a handful of VCT/EIS.

I tend to use Cavendish Online or Club Finance to actually buy the investments as they refund initial charges and commission.

I've no idea whether they are good investments or not. None of them have matured yet, but they've paid annual tax free dividends, some of the underlying companies they invested in have gone bust whilst others have made millions.

If I'm honest, the only reason I invested in them was because of the tax benefits, which is probably not a good enough reason for a proper investor.

However, I liked the idea of some of them and decided to take a punt. Maybe I'll make some money, maybe I won't.

I certainly wouldn't recommend any individual investments, but the tax breaks are worth highlighting as they are a way of getting money out of a limited company and avoiding higher rate tax.

[psychocandy]

If you invest in a high interest account (2.5% whoop whoop), that's a good way of keeping the money in the business account.

IMO taking a 25% hit on day 1 is not a wise move. High risk = bad (my personal opinion). Low risk = small gains, not enough to recoup the 25% hit one just took

I can quite happily live on a wage that is < higher tax band (for now).

Are there any decent interest business accounts that dont have minimum deposit of £50K or something?

[MrRobin]

Are there any decent interest business accounts that dont have minimum deposit of £50K or something?

2.9% Shawbrook Bank 100 Day Notice account. Min £5,000

Compare the best Business Savings Accounts in the UK with Moneyfacts best buy comparison

[MrRobin]

I've made some smallish investments with a handful of VCT/EIS.

<snip>

Thanks. I'll have a look at Cevendish as I used them for my personal pension. I realise it's high risk but a small - medium investment bolstered by the tax break could be what I'm looking for.

[TheFaQQer]

Are there any decent interest business accounts that dont have minimum deposit of £50K or something?

3.1% (Shawbrook - 1 Year Fixed Rate Business Savings Bond - Issue 1) - £5k
3% (Santander - 1 Year Fixed Rate Business Bond). - £25k
2.9% (Shawbrook - 100 Day Notice Business Savings Account - Issue 2). - £5k
1.5% (Saffron BS - Business e-saver, instant access, £1,000 or over) - £1k

[minstrel]

Thanks. I'll have a look at Cevendish as I used them for my personal pension. I realise it's high risk but a small - medium investment bolstered by the tax break could be what I'm looking for.

A couple of other points that may be of interest...

VCTs have to be held for a minimum of 5 years to qualify for the income tax relief.
EIS investments only have to be held for 3 years.
EIS investments can be used to defer capital gains.

The income tax relief on VCTs has been 30% for a while. The income tax relief on EIS used to be 20% and increased to 30% this year.

So as an investment vehicle EIS beats VCT in my book as EIS now has the same income tax relief, has to be held for less time and can be used to defer/offset CGT.

Cavendish don't do EIS (or at least they didn't - I think it's to do with their insurance), but Club Finance do.

[northernladuk]

3.1% (Shawbrook - 1 Year Fixed Rate Business Savings Bond - Issue 1) - £5k
3% (Santander - 1 Year Fixed Rate Business Bond). - £25k
2.9% (Shawbrook - 100 Day Notice Business Savings Account - Issue 2). - £5k
1.5% (Saffron BS - Business e-saver, instant access, £1,000 or over) - £1k

Sorry for quoting your example TF but to you guys investing in these you are taxed on the interest and then taxed when you divi it out to yourself yes? so doesn't leave much on a few percent unless you have a lot in the co? Am still crossing my fingers someone will come up with something worthwhile no one has spotted yet.

[Ruprect]

I've invested in a few VCTs. Baronsmead and Close Bros have performed better than most.