Share Dealing through LTD Company

[tirmizi]

Hi I have searched a lot and found some old discussions here about pros and cons. But I couldn't find a Yes/No ans. I have got some extra cash in business account that's earning nothin which I want to invest in stocks and shares for long term (at least hold for year) in a LTD company share dealing account and I also want to open a personal share dealing account which I can use for new IPO and frequent buying and selling. Is anyone doing it right now , is it a good idea?

[Martin at NixonWilliams]

Hi I have searched a lot and found some old discussions here about pros and cons. But I couldn't find a Yes/No ans. I have got some extra cash in business account that's earning nothin which I want to invest in stocks and shares for long term (at least hold for year) in a LTD company share dealing account and I also want to open a personal share dealing account which I can use for new IPO and frequent buying and selling. Is anyone doing it right now , is it a good idea?

The list of pros and cons are endless but the main things to consider are the tax effects of doing it personaly vs. through the company and the effect this will have on your eligibility for entrepreneurs relief when disposing of the shares in your company - this can be a very costly sacrafice.

For any disposals made personally, you will pay either 18% or 28% capital gains tax depending on whether you are a basic rate taxpayer or higher rate taxpayer. You also have a capital gains allowance each year, currently £10,900, meaning you will not pay any capital gains tax until your gains exceed this amount (£11,000 from 2014/15).

Any gains made through the company will be subject to corporation tax. In order to extract the funds generated by these gains you ought to consider the income tax effects of withdrawing the funds from the company. There is no annual allowance through the company but there is what is called indexation allowance, this allows for inflation on the cost from the date of purchase to the date of disposal. This could be particularly beneficial to you if the plan is to hold the investments long term as you say.

The effect on your eligibility for entrepreneurs relief is that you must be considered a trading company to qualify. If a large amount of your company's assets are tied up in investments your company is likely to be considered an investment company and will therefore not qualify. It might be worth investing personally to protect your entitlement depending on your circumstances.

There is a lot more to it but these are the key considerations.

I hope this helps.

Martin

[Jeebo72]

I'm dealing through my ltd company. Have done for years. The amount of money generated is much less than my IT contracts, so still a "trading" company. Never had any issues.

[Martin at NixonWilliams]

I'm dealing through my ltd company. Have done for years. The amount of money generated is much less than my IT contracts, so still a "trading" company. Never had any issues.

It's not just about the income generated, the company's asset base is also a factor, see below.

CG64090 - Entrepreneurs? Relief: trading company and holding company of a trading group - the meaning of "substantial"

[TheCyclingProgrammer]

It's not just about the income generated, the company's asset base is also a factor, see below.

CG64090 - Entrepreneurs? Relief: trading company and holding company of a trading group - the meaning of "substantial"

So in other words, you can never be certain until/unless HMRC challenge an ER claim and they give you their own opinion on the matter.

[Martin at NixonWilliams]

So in other words, you can never be certain until/unless HMRC challenge an ER claim and they give you their own opinion on the matter.

I would agree with that!

There will be clear cut instances of course, but if you are a contractor with a reasonably small (in comparison to assets & t/o etc) amount of investments as a side undertaking I would like to think the contractor would have a reasonable defence for being a trading company.

If the idea is to build up a large amount of funds in the company to take advantage of ER later down the line, it is probably worth avoiding or keeping minimal to be on the safe side, and investing personally to increase your portfolio if you need to.

[TheCyclingProgrammer]

If the idea is to build up a large amount of funds in the company to take advantage of ER later down the line, it is probably worth avoiding or keeping minimal to be on the safe side, and investing personally to increase your portfolio if you need to.

I suppose if you want to do any significant investing without taking the tax hit now, the sensible answer would be to make a company pension contribution into something like a SIPP and do your investing from there?

[Martin at NixonWilliams]

I suppose if you want to do any significant investing without taking the tax hit now, the sensible answer would be to make a company pension contribution into something like a SIPP and do your investing from there?

Yes, another good option providing the money does not need to be accessible in the short term.