Can I use my business' money to invest in stocks or property instead of paying myself

[giuseppev]

hi ujjain,

any luck with investing your ltd cash?

Thanks

I have saved around £50k on my business bank account. Can I use my business' money to invest in stocks or property instead of paying myself dividends?

[Contreras]

I'm already investing in accumulation funds, although income of my bonds is paid out inside of the ISA available for reinvestment, so I think that shouldn't matter.

Open a SIPP and the company pays directly into it. Then, broadly speaking, whatever you are doing inside the ISA can be done inside the SIPP too. The SIPP can be more tax efficient *but* your investment is locked away and potentially subject to rule changes (money grab) so IMHO consider using up the ISA allowance first.

An IFA might help with investment strategy and choice of SIPP provider. Though I would much rather trust an accountant for the tax technicalities, company and personal.

[ujjain]

Thanks a lot. I thought contractors would lose their personal allowance too after paying themselves too much dividends? I could be wrong though.

I'm already investing in accumulation funds, although income of my bonds is paid out inside of the ISA available for reinvestment, so I think that shouldn't matter.

But I'll keep doing more research and maybe find a financial advisor yeah.

[blackeye]

The disadvantage of personal investments is that I pay 20% corporation tax, then dividend tax, then I invest and I pay dividend tax on the profits on that. If investing via the Limited company can save me some tax, then why not.

Just another note, you should always buy accumulation funds, not income when you're young. If you've invested within an ISA wrapper you won't be tax in the capital gains.

I think you should see a financial advisor..

[blackeye]

I do agree I should invest in a pension, although I'm <30 and I do want to take advantage of the passive income early.

I don't want to pay myself over 100k, because of the 60% effective tax from 100k to 120k, Tax system flaws leave professionals paying 60 per cent - Telegraph

I don't understand how that is relevant to a low salary, high dividend payment structure?

I'm around your age and because I'm saving to buy a house, all of my retained earnings are going into dividends. I invest 80% of my personal disposable income into a portfolio of funds, some of which are quite adventurous (think Jupiter India!). The rest goes into easy access Peer to Peer lending.

My overall tax rate now is circa 50% because I'm only paying £750 into my pension and my other expenses are low.

If I was older with a house, I would be maxing out my pension and thus the overall tax rate will be lower.
If I was nearing retirement I would retain money in my LTD to draw slowly and tax efficiently as I already have a house paid off and a sizeable pension.

It's a complex topic and your personal situation will dictate what you should do. There is no point investing retained earnings from your LTD without assessing your personal situation.

[ujjain]

I do agree I should invest in a pension, although I'm <30 and I do want to take advantage of the passive income early.

I don't want to pay myself over 100k, because of the 60% effective tax from 100k to 120k, Tax system flaws leave professionals paying 60 per cent - Telegraph

I have been investing via my ISA in Vanguard and I'm hoping to achieve a 7% return per year, which means your investments are 15 times as high after 40 years.

So I think it's really worth into looking what options are out there.

The disadvantage of personal investments is that I pay 20% corporation tax, then dividend tax, then I invest and I pay dividend tax on the profits on that. If investing via the Limited company can save me some tax, then why not.

[pr1]

True. It is locked in, but isn't saving for old age a good thing?

Not if you die at 54 having lived on £1k disposable income per month your whole life despite earning a lot more!

[Maslins]

Yes you can...but generally speaking it's not a great idea. It complicates things, and also can have knock on tax impacts further down the line by muddying the waters over whether the company is a trading or investment company. Plus any gains made are likely to be taxable, whereas if those same gains were made in a SIPP/ISA, they'd likely be tax free.

As others have suggested, putting money into a SIPP and investing from there can be a tax efficient way of doing things. A less tax efficient option (but gives you more flexibility) is to extract the cash as dividends/similar now, and invest personally (perhaps in an ISA).

Caveat - the above is just my personal opinion not investment advice bla bla.

[Hobosapien]

I wonder if the government will relax the restriction on SIPPs being used to invest in direct residential property in the autumn statement or next year's budget, to keep the property bubble inflated.

In the meantime use the SIPP money to invest in stocks/shares with low cost index tracker set for say a 10 year investment period. Buy the residential property with low interest mortgage (10 year fixes are around 2.5%-3%). In 10 years (or sooner if SIPP rule change allows it) pay off outstanding amount (if over 55 so can withdraw SIPP funds) or remortgage if rates still lower than what can average in the SIPP investment over the mortgage term.

If the pound devalues or interest rates rise significantly then the SIPP investment will perform better(?) to offset any increase in non-fixed mortgage payments.

Any flaws in this plan?

[northernladuk]

Maybe you have a short memory, here's where you asked the same question last time

http://forums.contractoruk.com/busin...fs-stocks.html

Good spot! Definitely a ditherer.

Wonder if he has worked out what is his salary and what isn't yet.

[MrMarkyMark]

Maybe you have a short memory, here's where you asked the same question last time

http://forums.contractoruk.com/busin...fs-stocks.html

[pr1]

You're much better off putting that 50k into a SIPP (pension), and then investing in stocks / commercial property (you can't invest in residential with a SIPP). This will minimise your corporation tax bill.

Investing the retained earnings can be done, but you will be taxed (potentially quite heavily).

Speak to a professional, we aren't financial advisors or accountants. Pay the professionals.

...but then it's stuck there until you're 55...

AIUI you can invest via your company with post-corptax profits, but you should check the specifics with your accountant

[blackeye]

You're much better off putting that 50k into a SIPP (pension), and then investing in stocks / commercial property (you can't invest in residential with a SIPP). This will minimise your corporation tax bill.

Investing the retained earnings can be done, but you will be taxed (potentially quite heavily).

Speak to a professional, we aren't financial advisors or accountants. Pay the professionals.

[northernladuk]

What did your accountant say?

I just can't get over why people have an accounting question and choose to ask a bunch of strangers before they ask a professional they are paying for.

There are a ton of articles on Google and CUK and heaven forbid you try searching the forums......

[ujjain]

I have saved around £50k on my business bank account. Can I use my business' money to invest in stocks or property instead of paying myself dividends?