Growing Ltd Co. profits via investment bond

[ksimeons]

the blind spot is simple.... Why would you do this?

I get that you don't want to pay higher tax now on dividends.
I get that you don't want to get just 1-2% interest on business savings.

But on the flip side, you will have

• Risk. To get much more than 1-2% you need to accept risk (whereas you can get 5% personal savings accounts with no risk). You might lose 10%
• Corporation tax
• Income tax anyway. Cannot avoid that. And it's only going to get higher (see also CT)
• Complication
• oh and if you divi the cash to the other LTD. using alphabet shares where does that fit with GAAR? Seems like an overly complex method purely designed to avoid tax (what GAAR is designed for)
• Can you get BADR for an investment company? I'm not sure but neither an IFA nor an accountant necessarily can answer that.

And as for property. I think you have dismissed it too quickly.... Why not business property? Hold it as an asset in the main company that you can pay CGT for as part of a business sale.

It all sounds a bit too much like dicking around pretending to be a business.
So either wind the company and work FTC for 2 years, or pay the tax and invest it wisely without complication, risk and uncertainty (well less uncertainty).

And if you do proceed you should challenge this idea of alphabet shares and dividends. Just loan the money from A to B, or have A as 100% shareholder of B. Keep it simple.

Thanks, some helpful questions to pursue.
I'd expect accountant to be on top of GAAR but when and how BADR comes into play is something that needs asking.
I had accepted the risk element as I am looking for 10 year + growth but your insights make me think a like for like comparison with the simple option of take the tax hit and invest in best individual savings rate risk-free is also important to do.

[jamesbrown]

I think you're way over-complicating this. Wait for the Budget on Thursday - it's quite likely that BADR will be gone, which makes the distinction between being classified as a CIHC and a regular trading company less important (assuming they don't do anything else). You can already get close to 5% on multi-year fixed rate business savings. Obviously, your company will pay CT on interest income.

[Lance]

Got to be honest, I agree with the others. It sounds absolutely mad. Pay the money to yourself and invest it in ISA and SIPP.

OP's SIPP is maxed.

Cash ISAs are not necessarily ideal right now as you can get 5% in a fixed term saver. Paying the tax may be a better investment. As OP has an IFA they can help identify the best method (or he can listen to Martin Lewis for free)

[Fred Bloggs]

Got to be honest, I agree with the others. It sounds absolutely mad. Pay the money to yourself and invest it in ISA and SIPP.

[Lance]

There is a boundary between what the IFA can advise on and what the Accountant can advise on, I am keen to check via others' experiences that there is no blind spot in between.

I've checked that my IFA is well reviewed. It should be a legitimate vehicle for growth, well beyond taking it out at a heavy tax rate and personally investing it in a savings account. I am in a fixed term contract on PAYE so taking dividends adds to my tax bill. Stocks and Shares ISA personal allowances are already in use so no help to me.

The Accountant is responsible for the manner of funds transfer between the Ltd Cos and is of the view that if taken as 'franked income' (dividends) then the investment company would not owe this money back to the contracting company, which avoids complications with returning that money when the other company might ultimately close for example.

I'm surprised there are not more clear examples of how to achieve growth in Ltd Co. profits after all tax liabilities have been taken care of, I don't have the time for property research and this may be much more volatile now anyway. It isn't cash I need to live on, or to support a return to contract roles.

A corporate investment bond can't be that unusual? Corporation tax rules need to be understood and agreed with by my accountant, but my understanding is that offshore bonds create no liability until encashed or assigned. The underlying investment co. being recommended have a ton of documents to explain all of this.

Anyone else got experience with this?

the blind spot is simple.... Why would you do this?

I get that you don't want to pay higher tax now on dividends.
I get that you don't want to get just 1-2% interest on business savings.

But on the flip side, you will have

• Risk. To get much more than 1-2% you need to accept risk (whereas you can get 5% personal savings accounts with no risk). You might lose 10%
• Corporation tax
• Income tax anyway. Cannot avoid that. And it's only going to get higher (see also CT)
• Complication
• oh and if you divi the cash to the other LTD. using alphabet shares where does that fit with GAAR? Seems like an overly complex method purely designed to avoid tax (what GAAR is designed for)
• Can you get BADR for an investment company? I'm not sure but neither an IFA nor an accountant necessarily can answer that.

And as for property. I think you have dismissed it too quickly.... Why not business property? Hold it as an asset in the main company that you can pay CGT for as part of a business sale.

It all sounds a bit too much like dicking around pretending to be a business.
So either wind the company and work FTC for 2 years, or pay the tax and invest it wisely without complication, risk and uncertainty (well less uncertainty).

And if you do proceed you should challenge this idea of alphabet shares and dividends. Just loan the money from A to B, or have A as 100% shareholder of B. Keep it simple.

[ksimeons]

why issue dividends to the investment company rather than loan it the money?
And surely if this is the brainfart of your IFA they can tell you how to do this???

To me it sounds bonkers, messy, and likely to go pear-shaped. The bank might be doing you a favour.
The idea of not using your main LTD is wise, but the rest of it sounds dodgy.
Just take the money and invest it as personal money, or stick it in a savings account.

There is a boundary between what the IFA can advise on and what the Accountant can advise on, I am keen to check via others' experiences that there is no blind spot in between.

I've checked that my IFA is well reviewed. It should be a legitimate vehicle for growth, well beyond taking it out at a heavy tax rate and personally investing it in a savings account. I am in a fixed term contract on PAYE so taking dividends adds to my tax bill. Stocks and Shares ISA personal allowances are already in use so no help to me.

The Accountant is responsible for the manner of funds transfer between the Ltd Cos and is of the view that if taken as 'franked income' (dividends) then the investment company would not owe this money back to the contracting company, which avoids complications with returning that money when the other company might ultimately close for example.

I'm surprised there are not more clear examples of how to achieve growth in Ltd Co. profits after all tax liabilities have been taken care of, I don't have the time for property research and this may be much more volatile now anyway. It isn't cash I need to live on, or to support a return to contract roles.

A corporate investment bond can't be that unusual? Corporation tax rules need to be understood and agreed with by my accountant, but my understanding is that offshore bonds create no liability until encashed or assigned. The underlying investment co. being recommended have a ton of documents to explain all of this.

Anyone else got experience with this?

[northernladuk]

Are you a registered FCA? Will you be holding client monies? None of these are relevant as no other parties involved, I am sole director of both Ltd Cos.

Probably irrelevant but just for interest. Maybe you are sole director but they are still separate entities. If one LTD is holding money for the other LTD then does the fact they are separate companies mean there is a client here even if you are sole director? You might be the director but you do not own the LTD money until it's distributed to you? You migth be responsible for it so is that enough to not consider the LTD to LTD as a client/service model?

Might be overthinking this but being director of both seems a bit overly simplistic? That might not be the case in the future etc.

[Lance]

why issue dividends to the investment company rather than loan it the money?
And surely if this is the brainfart of your IFA they can tell you how to do this???

To me it sounds bonkers, messy, and likely to go pear-shaped. The bank might be doing you a favour.
The idea of not using your main LTD is wise, but the rest of it sounds dodgy.
Just take the money and invest it as personal money, or stick it in a savings account.

[ksimeons]

Hello,

First-time poster here so I'm hoping this is in the right place, I couldn't find a lot of recent detail on such a question.

I have Ltd Co. I wish to keep open for future contracting use (I'm currently on a FTC so PAYE but expect to be back in the contractor market within 2 years), however it has significant profits I wish to grow.

Property is too time-consuming and I have used my full Ltd Co. pension allowance including carry back for the years allowed.

I have advice from both my Accountant and a Financial Advisor that I can open a new Ltd Co. and issue an Alphabet share to that from my trading co, allowing the issue of dividends from the contracting company to the investment company in order to place them into an investment bond. I am advised corporation tax has to be paid only when the bond is encashed or assigned to me as an individual.

I am having real trouble getting a bank account for this new Ltd Co, not sure why - maybe because it will have no regular income and so not worth their while, but it has attracted all sorts of questions e.g. Are you a registered FCA? Will you be holding client monies? None of these are relevant as no other parties involved, I am sole director of both Ltd Cos.

My accountant recommends this new Ltd Co. specific for the investment (as opposed to using my trading company) in order to keep it clear and distinct from trading, payroll, VAT, etc.

My questions are:
1) Has anyone got experience of this and which bank did you use?
2) Can the experienced flag any concerns between the accountant's and the financial advisor's advice?

Thanks, KJ.