Reply to: what to do with business account money?

[css_jay99]

whats with all this long term planning.

people drop dead everyday. you cant take your money to heaven.

live life or else who ever inherits it will lives it for you!

wish i had that much and i certainly know what will be doling with it.

please keep the thread going re investment opportunities. maybe I'll get there one day


css_jay99

[FCSimmo]

thanks for the advice.

if i take it as divs then would the following be right...

10K salary + 29K divs at 20% = 7.8K tax
150K - 39K above = 111K divs at 40% = 44.4K
total tax paid 52.2K

No, the 150K above the threshold is taxed at 22.5% (when you take off the 10% tax credit) as per the other thread about going over the low rate tax barrier...

[IR35 Avoider]

thanks for the reply, but why would i want to go up to the higher rate threshold? Also, what sort of investments do you recommend?

Because that's the most you can take without paying higher rate tax. Dividends below that level are taxed at 10%, but come with a 10% tax-credit, so there's actually no personal tax to pay.

Investments are a big topic, and my opinion of what's worthwhile will change from month to month.

One simple strategy would be to divide your money equally between a bond fund (e.g. ETF with ticker=SLXX) and a tracker fund (e.g. ETF with ticker=ISF) and then whenever you add money or reinvest interest/dividends or remove money, choose to buy/sell so as to equalise your holdings in each. That way you will tend to buy more of whichever is down, or sell whichever has increased the most. The bond ETF is the only cheap way of getting into bonds, which is why I prefer it to normal funds. Selftrade currently charge zero commission on ETFs, which minimises the costs of reinvesting dividends. I don't know if they are going to keep this feature - they no longer mention it on their web site - however they may be replacing it with something even better - I think they may be going to allow free reinvestment of dividends generally.

[contractor58]

Take advantage of the credit crisis and high LIBOR rates.

For the amount of money you have in the bank you can get a rate of 6.74% if you put it in 1 month LIBOR

http://www.singers.co.uk/treasury/co...erestrates.htm

[hgllgh]

Use the money to pay dividends to take you up to the higher rate threshold in any year in which you wouldn't otherwise reach the threshold. In the meantime, invest the money. (I see Selftrade stockbrokers now offer a company share account.) This way you will pay no more tax on the money than you alread have.

If you have to pay any CGT at all on taking it out now, that is extra tax you could have avoided. If CGT is only 10% (because of taper relief) then that might be a price worth paying to get the money in your own hands now, any more than that and I would leave it within the company and treat is as part of my long-term savings.

thanks for the reply, but why would i want to go up to the higher rate threshold? Also, what sort of investments do you recommend?

[hgllgh]

I'd look to take the money out (as I am currently doing, with a similar sum). I'll be going down the closing the company route, but if I don't get granted ESC C16 I'll take the lot as dividends.

Some accountants (mine included) are very quick to recommend I invest the money in xyz. Oddly enough some accountants (mine included) are then very quick to recommend you speak to their in house IFA.

Cynical? Moi?

Take the money out, then it's yours rather than YourCo's.

Obviously this depends on lots of factors - do you need the money (e.g. pay off mortgage), are you close to retirement (put it in a pension) etc.

thanks for the advice.

if i take it as divs then would the following be right...

10K salary + 29K divs at 20% = 7.8K tax
150K - 39K above = 111K divs at 40% = 44.4K
total tax paid 52.2K

[hgllgh]

I had the same question a couple of years ago. My accountant (as most) are reluctant to advise taking the money out of the company (for the reasons you have stated) - My argument was if you could get a solid investment say around around the 8 - 9% it would be possible (just based on compound interest alone) to recupe the initial tax hit of removing the money from the company. The other thing is say sod it and buy a nice holiday let abroad and use it yourself in the quiet months and stuff thinking to much about the most tax effecient ways of getting at the cash - after all you earned it

Was thinking about doing this. the US crash in real estate could be a good opportunity to buy in at the bottom of the market over there although it might take a few more years to reach the bottom. Maybe somewhere like Florida which is popular with Brits?

If I did this would this be a straight investment out of business capital in my
business account? i.e. would there be any tax to pay on the investment?

[hgllgh]

1. Ask your accountant first.

2. Close your company and take the money out as a capital gain before April when the rules about doing that will change.

3. Thats just an idea but run it past your accountant.

If I do this before April I would pay 20% as basic rate taxpayer or 40% as higher rate? After April I pay 18% regardless so wouldn't it be better to do this after April ?

[IR35 Avoider]

Use the money to pay dividends to take you up to the higher rate threshold in any year in which you wouldn't otherwise reach the threshold. In the meantime, invest the money. (I see Selftrade stockbrokers now offer a company share account.) This way you will pay no more tax on the money than you alread have.

If you have to pay any CGT at all on taking it out now, that is extra tax you could have avoided. If CGT is only 10% (because of taper relief) then that might be a price worth paying to get the money in your own hands now, any more than that and I would leave it within the company and treat is as part of my long-term savings.

[Crossroads]

I'd look to take the money out (as I am currently doing, with a similar sum). I'll be going down the closing the company route, but if I don't get granted ESC C16 I'll take the lot as dividends.

Some accountants (mine included) are very quick to recommend I invest the money in xyz. Oddly enough some accountants (mine included) are then very quick to recommend you speak to their in house IFA.

Cynical? Moi?

Take the money out, then it's yours rather than YourCo's.

Obviously this depends on lots of factors - do you need the money (e.g. pay off mortgage), are you close to retirement (put it in a pension) etc.

[Alan @ BroomeAffinity]

Agree with Gonzo. I'm an accountant and advising any client with a decent amount in the reserves that has been trading for longer than 2 years to shut the company and go down the CGT route.

Ask your own accountant first though. And yo need to do it before April as the rules change.

Once you have taken it out, then buy a BTL.

[Cooperinliverp00l]

buy a BTL ?

[Bear]

I don't see the point of keeping it in the business account. Keep enough in there to cover a year off work (if you normally don't go above the 38k limit then 40k will be plenty).

Yes you will pay tax on it but at least you get to enjoy the money. Leaving it in the business account forever is a bit pointless - the interest will add to it and you'll always be faced with the same question. Why take it out 'cos then I'll have to pay tax on it.

Whatever route you take - one day you will have to take it out and pay the tax - at retirement maybe?

Take it out now and get better rates of return on the money now

[weemster]

I had the same question a couple of years ago. My accountant (as most) are reluctant to advise taking the money out of the company (for the reasons you have stated) - My argument was if you could get a solid investment say around around the 8 - 9% it would be possible (just based on compound interest alone) to recupe the initial tax hit of removing the money from the company. The other thing is say sod it and buy a nice holiday let abroad and use it yourself in the quiet months and stuff thinking to much about the most tax effecient ways of getting at the cash - after all you earned it

[Gonzo]

I have around 150K sitting in a cater allen reserve business account which actually earns a good rate of 4.8% gross so 3.84% after corp tax. With RPI interest over 4% this means the money isn't even keeping its head above water

what is the best thing to do with this amount of money?
ofcourse, withdrawing over 38K will mean an extra 22% tax in the dividends (currently take 10K as salary) so effectively it's not worth withdrawing over the upper limit ??

1. Ask your accountant first.

2. Close your company and take the money out as a capital gain before April when the rules about doing that will change.

3. Thats just an idea but run it past your accountant.