Reply to: Can my company buy stocks instead of paying me dividends?

[pacontracting]

Ask your accountant.

If you've already asked and didn't like the answer, tough. You're already paying far less tax than a permie.

Most accountants are not financial advisors - nor tax experts. This is where investment banks make their money i.e. qualified financial advisors (who also usually have an accountancy qualification but not the other way around) advise companies on this sort of thing.

The answer I would give is - talk to your small business banking advisor who would be happy to help / point you in the right direction.

[diseasex]

LOL. Anyway, you are mostly right, I think.


Note the "most distributions". OP should make sure he understands which are and aren't exempt. But in general, the dividends will not be subject to CT.
HOWEVER.... When those dividends are disbursed as dividends to OP, they certainly will be taxable to him personally under the dividend tax.

Indexation -- yes, you can use indexation to reduce your CGT if you realise a gain when you sell shares.
HOWEVER.... Shares sold by an individual are eligible for an annual CGT allowance, not so shares sold by a corporation.

Finally, if you carry on significant investment activity within your company you put the option to use ER in the future at risk. If that doesn't matter to you, no problem.

So you were mostly correct in what you said but didn't give the other side of the story to someone trying to decide whether to invest through their company or not. You can pretty much do exactly as you said, but there are those little details that are important in making an informed decision which you left out.

Details, details, who cares, right?

To make things simple - if you gain INTEREST from bonds or funds - you have to pay CT. If you gain DIVS then you don't in usual scenarios
And you are right, if your trading is significant then you will lose right to ER. But only if you ever plan to dissolve your company.
I gave overall description of this "scheme" and expected some questions related to that.

[WordIsBond]

LOL. Anyway, you are mostly right, I think.

Part 9A of CTA09: distributions received on or after 1 July 2009
Dividends or other distributions received on or after 1 July 2009 from UK or overseas companies are chargeable to CT under CTA09/Part 9A (added by FA09/S34) unless the distribution is exempt. Most distributions, including those from overseas companies, as well as those from UK companies which were exempt under the previous rule outlined below, are now exempt. See INTM65000 for more details.

Note the "most distributions". OP should make sure he understands which are and aren't exempt. But in general, the dividends will not be subject to CT.
HOWEVER.... When those dividends are disbursed as dividends to OP, they certainly will be taxable to him personally under the dividend tax.

Indexation -- yes, you can use indexation to reduce your CGT if you realise a gain when you sell shares.
HOWEVER.... Shares sold by an individual are eligible for an annual CGT allowance, not so shares sold by a corporation.

Finally, if you carry on significant investment activity within your company you put the option to use ER in the future at risk. If that doesn't matter to you, no problem.

So you were mostly correct in what you said but didn't give the other side of the story to someone trying to decide whether to invest through their company or not. You can pretty much do exactly as you said, but there are those little details that are important in making an informed decision which you left out.

Details, details, who cares, right?

[diseasex]

also suspicion you may choose of those peoples who claim certainty but cannot even punctuate or consistently put assemble coherent sentences
those who do so may get payed by damage to their vompany

For financial / legal advice, I always have a lot more confidence in someone whose writing shows they are a person who pays attention to detail. The detail-oriented person may be wrong and the careless person may be right, but the law of averages works the other way.

What can I say - tried and tested in my case.
And the reason for no punctuation is I was writing on surface - tricky to write

but because i didn't hear any questions relating to that i consider this thread as not being serious.

[WordIsBond]

dont listen to those that 'think' know the answer

also suspicion you may choose of those peoples who claim certainty but cannot even punctuate or consistently put assemble coherent sentences
those who do so may get payed by damage to their vompany

For financial / legal advice, I always have a lot more confidence in someone whose writing shows they are a person who pays attention to detail. The detail-oriented person may be wrong and the careless person may be right, but the law of averages works the other way.

[diseasex]

Can I just check that you are giving out financial advice now? (Is there a scary smilie?)

your investments can go up and down as well as land in my pocket in form of fees

[WTFH]

Can I just check that you are giving out financial advice now? (Is there a scary smilie?)

[diseasex]

dont listen to those that 'think' know the answer
first of all:it's perfectly fine to own shares of funds purchased for income after CT
secondly - you dont pay CT on dividend payed to your limited from your shares! they have been paid in the source vompany.
also you get indexation for holding your shares which reduces their 'worth' with inflation so you pay less tax
in my case im buying dividend yielding funds that grow in value and that value is being reduced by dividends paid.
so far it works out great

[NotAllThere]

It is always best to get a 100% understanding of any clients background, what is possible for person A may not be possible for Person B.

So thank you very much for the clarity but I stand by my guns on the point that it really depends on the situation.

I'm glad you're all friends now.

TulipSmartGrope - you were less than clear. There's a world of difference between "I think" on a subject you're supposed to be an expert on and "It depends on the situation". Also, if you're going to put the word "smart" into your company name, your setting yourself the challenge of never appearing less than smart - if you do, you're ripe for parody! Such parody is very unlikely to be actionable defamation.

[northernladuk]

Also name calling is little childish if I may add. Grow up.

Hee hee. I was going to remove those as you came back to clarify the situation. I was also going to give you some feedback that you make things like the extra information clear in your posts. The 'I think' and 'I guess' doesn't inspire confidence from people reading the forum. You might know what you meant but we don't.

But I'm sulking now so I'll do it later.

[northernladuk]

1. Stocks of which company?
2. I personally don't think this is possible or allowed.
3. There are better tools such as SSAS and other Tax Planning that is much more simple, clear, and legitimate.

Again with the 'don't think'. You are an accountant, shouldn't you know? I'd ask your accountant and put something that you are sure about in your next post.

[LondonManc]

Ask your accountant.

If you've already asked and didn't like the answer, tough. You're already paying far less tax than a permie.

[Fred Bloggs]

To be clear, there is no way here of avoiding tax, but you may defer it, a SIPP is such a device for this and is very effective since you do get 25% of the asset tax free in the end.

[Waldorf]

If you really want to build a share portfolio there's two preferred routes IMO -

1 Make company contributions into your pension, buy shares in the pension.

2 Take dividends and buy shares within an ISA.

Both methods are tax efficient but in different ways.

He could simply build the portfolio within his company. This avoids personal tax whilst you build up the investments but this would prohibit any chance of getting ER.

This is a very long term solution, you would keep the company for as long as you hold the investments and only worth while if you intend to build a meaty portfolio of say at least £300-400K.

[Fred Bloggs]

If you really want to build a share portfolio there's two preferred routes IMO -

1 Make company contributions into your pension, buy shares in the pension.

2 Take dividends and buy shares within an ISA.

Both methods are tax efficient but in different ways.