Buying shares using my UK LTD

[electronicfur]

Are you likely to be changing this approach given that, from next year, dividends will be attracting an additional 7.5% tax?

Dividends extracted from the company will, but not dividends received from investments held by the company. So I'll probably keep the same approach, as it still allows me to invest my profit, and extract it later when on sabbatical at the lower tax rate of 7.5%, rather than immediately and hit the 32.5% rate.

[fidot]

Are you likely to be changing this approach

The above is what I do, whether it suits your circumstances is another matter. But for me it beats having to extract the money at the higher tax bracket, or having the money sat in a company bank account which only pays miserly interest.

Are you likely to be changing this approach given that, from next year, dividends will be attracting an additional 7.5% tax?

[electronicfur]

Take advice but often accountants advise against this because it can be horrendous to do the accounts if you have investments, certainly if you do lots of buying and selling. If you are not a but and hold person then doing it personally probably makes more sense.

The amount of work to do is similar whether the investments are held within your limited company, or whether they are held personally. Only if they are held in an ISA or Sipp is there less work.

I myself have quite a large investment portfolio in my company. I find it worthwhile to do this in order to avoid having to extract the money at the higher rate tax bracket. I invest the money instead in fixed income, subordinated bank debt, and high yielding shares. Then later I extract the money in years when I am not contracting due to sabbaticals. I've had advice which says the company will still be treated as a trading company if the sabbaticals are not too long, with 3 years being the longest I have taken. An additional advantage is that your limited company does not have to pay tax on any dividend income received from the investments, due to the double taxation rules. So I find it's better choosing fixed income securities that pay dividends rather than interest when holding inside a ltd company.

The above is what I do, whether it suits your circumstances is another matter. But for me it beats having to extract the money at the higher tax bracket, or having the money sat in a company bank account which only pays miserly interest.

[Waldorf]

I think that is why I said it depends on the person. I did also mention it as someone's retirement pot, so there would not be a plan to utilise ER and close the company, simply to use the income to live off in retirement.

I would be careful who I advised this to and I certainly wouldn't bother if you were talking about £20K, some people have serious pots of cash in which case it can be worth looking at.

Personally I have no plan to do this, I max out my ISA allowance, reinvest the dividends and have investments outside the ISA wrapper, I no longer invest in pensions.

Again, I would repeat, take advice but be wary of who gives it and whether they are swayed by a vested interest.

[TheCyclingProgrammer]

What ASB says, plus the risk of jeopardising your ability to claim ER if you wind the company up if you undertake any serious investment activity whilst ceasing to trade.

[ASB]

I think this depends on the person, if someone has a serious amount of cash and plan to use it as their retirement pot then by leaving the funds in the company you avoid hearty personal tax on the dividends.

That is true to a degree. But it is not simple and depends very much on individual circumstances.

Say, for example you are a 40% tax payer as a result of the dividends.

If you took 10k gross dividends then you end up with 7.5k net (changing soon of course).

Invest the 7.5k and it grows @ 5% for 20 years, then you have £20.5k. There will be some capital gains to pay, unless it was ISA'd - assume it was.

Now, in the corporate with the same 5% for 20 years then you would have 26.5k. Whoopie do.

Errrr, no. The gain of 16.5k would be subject to CT since there is no CGT allowance for the co. So this knock it down to 21.2. And you still have to get the money out of the co without suffering any additional tax on it in order to be ahead of the game.

Basically you are only looking at tax deferment. The question then is whether you are going to be in a better position tax wise at the point you want to get you mitts on it.

[this is why the tax relief on pensions is really an illusion, it just comes out at the other end and broadly taxed x growth = untaxed x growth x tax. The tax break on pensions only really comes if you are a lower rate taxpayer when drawing the pension than when you were contributing. It can be the case that the reverse is true, iun which case it is expensive tax wise]

[Jessica@WhiteFieldTax]

I think this depends on the person, if someone has a serious amount of cash and plan to use it as their retirement pot then by leaving the funds in the company you avoid hearty personal tax on the dividends.

Take advice but often accountants advise against this because it can be horrendous to do the accounts if you have investments, certainly if you do lots of buying and selling. If you are not a but and hold person then doing it personally probably makes more sense.

In my experience daily trader types tend to start with a large pot of money and end up with a much smaller pot!

Its not really about the complexity - thats our job The concerns are around mixing investment with trading, asset protection, and deferring some tax now for potentially something much higher if the portfolio grows. Bottom line is most accountants trade via companies, but don't have investments or properties in them.

[Waldorf]

Short answer = don't do it. Take the cash out and invest in shares (if that's what you wish to do) personally, potentially via an ISA. <-- not investment advice, share values can go down as well as up etc etc.

I think this depends on the person, if someone has a serious amount of cash and plan to use it as their retirement pot then by leaving the funds in the company you avoid hearty personal tax on the dividends.

Take advice but often accountants advise against this because it can be horrendous to do the accounts if you have investments, certainly if you do lots of buying and selling. If you are not a but and hold person then doing it personally probably makes more sense.

In my experience daily trader types tend to start with a large pot of money and end up with a much smaller pot!

[Jessica@WhiteFieldTax]

Short answer = don't do it. Take the cash out and invest in shares (if that's what you wish to do) personally, potentially via an ISA. <-- not investment advice, share values can go down as well as up etc etc.

Concur

[Maslins]

Short answer = don't do it. Take the cash out and invest in shares (if that's what you wish to do) personally, potentially via an ISA. <-- not investment advice, share values can go down as well as up etc etc.

[Waldorf]

You pay Corporation Tax on the profits of your company. After this has been accounted for you can pay the remainder as a dividend or amongst other things oh could invest the funds in shares etc.

Any profit you make you would have to pay tax on at 20%, if you make a loss this can only be offset against profits on the same activity, so you cannot offset any losses against your profits on your consultancy work.

Also speak to your accountant as if you do several trades, this will create a lot of work for them and hence extra costs for you.

[TheCyclingProgrammer]

Wouldn't you be investing using your post-tax profit? How would investing in shares reduce your CT bill?

[syrio]

You'll need to pay corporation tax on the profits.

[davieboy]

Hi there folks,

I couldn't find an answer to this so hope you can help.

Got a bit of profit left over in my LTD for the year, rather than pay 20% of it in Corporation tax, I'd like to invest in some FTSE shares.

My question is:

Let's say if I buy 100 shares of company XYZ and then sell them in 1 month.

I've made a profit of 1000 pounds.

Do I need to keep 20% of that for Corporation Tax or can I reinvest the profit and build my portfolio?

Thank you