Retirement/personal investment company vs trading company

[mickael28]

Hello,

I'm a contractor working through a ltd company and with some surplus in the company that was thinking about investing. First, I was thinking about investing directly through the limited trading company, but after reading about it, it seems that some accountants suggest to create a different company, that they call retirement company or personal investment company, and invest from there instead, e.g:

When is it best to use Personal Investment Companies? | Plus Accounting Brighton
Personal investment companies
with usages of such companies as:

* The profits which are made by the trading company can be lent to the PIC for investment purposes. This means that the investment company can be used to fund retirement and the trading company can concentrate on its trading activities.
* Personal investment companies can be used in a variety of practical situations, not driven by tax rates, such as:
* cash extraction from trading companies;

or:
http://www.intouchaccounting.com/wp-...urpluscash.pdf

Retirement company- a separate company as your investment fund
Some contractors create a separate retirement company, distribute dividends to that company and invest those
funds for the future...
The money can then be invested in a range of ways, selected by the contractor in order to generate either income
or gains...
This constitutes an interesting alternative to formal pension contributions.

I had a couple of doubts, mainly:

1. What is the advantadge of using a new and separate investment company rather than just investing directly from the current trading company?
2. Anyone knows the implications of that new investment company from an IHT point of view? ie, how could shares in that company be passed onto your children in the future?

[stek]

What does your accountant say?

[mickael28]

That they have never heard about that possibility of an investment company to use the surplus of a trading company, which kind of conflicts with the advice of other several accountants/tax advisors around the web.

Hence that I wanted to see if anyone knows more about the subject here...

[Martin at NixonWilliams]

I had a couple of doubts, mainly:

1. What is the advantadge of using a new and separate investment company rather than just investing directly from the current trading company?
2. Anyone knows the implications of that new investment company from an IHT point of view? ie, how could shares in that company be passed onto your children in the future?

Hi Mickael,

1. It is difficult to say without knowing your circumstances but to an extent it protects the trading status of the trading company, though this is unlikely to be the case if the trading company is funding the activities of the investment company.

In most cases my view is that it is best kept simple, i.e. within the one company, however you should be aware of the effects this can have on your eligibility for entrepreneurs relief and there are many other things to consider, too.

2. It is no different to any other asset for IHT purposes in terms of its chargeability, however Business Property Relief (BPR) will not be allowed as the business is not carrying on a qualifying trade.

I hope this helps.

Martin