corp tax on divis received

[Nixon Williams]

Hi Alan,

Can you please elaborate further on point (2). How does the Entrepreneurs' Relief depend on the trading status, and how does it get affected by using company funds to buy shares?

Thanks for your help.

For a successful claim for Entrepreneur's Relief (ER), the company should be a trading company and have traded for at least 12 months. So if you cease trading and the company's sole income is from investments then ER would not be available.

Even if the company is trading, if a significant part of the company assets/income is from investments that the status as a trading company could be at risk.

Alan

[Pegasus]

Hi Alan,

Can you please elaborate further on point (2). How does the Entrepreneurs' Relief depend on the trading status, and how does it get affected by using company funds to buy shares?

Thanks for your help.

[Nixon Williams]

Correct, no additional tax is due on dividends from UK companies. There are some exceptions, such as some property companies are now Real Estate Investment Trusts, and some distributions are taxable, but normal dividends have no additional tax.

Just some points to consider:

1. The dividend income would be included in determining whether your company is subject to the small company corporation tax rate, but provided the profit + dividends does not exceed £300K this should not be an issue.

2. A small minor issue to consider is that you may put at risk the trading status of yoyr company and so lose the right for Entrepreneurs Relief if you close in the future.

3. If you cease trading you could be classed as a Close Investment Company and so the small company rate of Corporation Tax would not be available, but probably a minor issue.

Alan

[moorfield]

Is it right that ltd cos pay no Corp Tax on divis received from shares/investments etc. ?

I'm thinking of snapping up some shares with company reserves - rather than shunting into a sipp - to start generating a high-yield divi income.