Reply to: Would you hold more than £75,000 in one bank?

[SandyD]

Can you not start another Ltd company for investment (property / property service / or whatever) and transfer the month to the other company and use it that way?

[scooterscot]

Here in Germany, absolutely not. The authorities can help themselves on a whim. Generally I keep tax liability offshore.

[WordIsBond]

Doesn't seem right to pay higher rate tax when I don't need the money. Mortgage is very low and that is our only debt. Not a big issue but we would lose child benefit as higher rate tax payers as well. But yes I am aware it will cost more to do it later. I figure take it out higher rate only if you need it, for all I know I might choose (or have) to have some extended time off and then I can get to it at lower rate.

Seems a shame not to enjoy some of the money if you can.

In any event, to clarify one thing, you can have up to £50K of income without affecting your child benefit. So it might be worth thinking about taking an extra £7-8K a year, taking the hit on higher rate tax on that much, and either enjoy a holiday or start to take bigger pieces out of that mortgage.

Between £50-60K the marginal tax rate is absurdly punitive if you have child benefit, especially if you have multiple kids. So in your situation, it makes no sense to breach £50K unless you really need money, and then you probably want to think about going all the way up to the additional rate threshold.

I personally wouldn't want to breach the £75K limit. I don't trust the stability of the economy given it is floating on massive amounts of consumer and government debt, and in the next crash (whenever it is), I don't expect government bailouts beyond the limit. I would rather pay the tax and get the money out than leave it at risk by breaching £75K, if that's the choice. I wouldn't be too bothered about putting some of it in very low paying accounts, though. Another option might be to invest some of it in gilts -- that would be safe enough. It's all at risk of inflation eating it away, of course.

[LondonManc]

Seems to me that if you've got £150k tied up in a company account, you're better off taking the hit on withdrawing it, buying a property outright and taking the annual rental yield on a long term appreciating asset.

[northernladuk]

Doesn't seem right to pay higher rate tax when I don't need the money.

I can't help thinking at some point the tax bands are going to change somehow. Whichever I am sure it's will be detrimental to us. Question is will we have enough notice and be it's position to withdraw it before the new rate hit or not.

[Lewis]

Ps one of the most tax efficient things I have come across to date is an electric car. You could get a new car for half price compared to taking the money at higher rate tax. There are some pretty nice EVs nowadays with more just around the corner.

[Lewis]

Doesn't seem right to pay higher rate tax when I don't need the money. Mortgage is very low and that is our only debt. Not a big issue but we would lose child benefit as higher rate tax payers as well. But yes I am aware it will cost more to do it later. I figure take it out higher rate only if you need it, for all I know I might choose (or have) to have some extended time off and then I can get to it at lower rate.

Been contracting since pre-IR35 so yes I can see the way things are going, but I'm still not ready for higher rate tax just yet!

Was just wondering if I am being too cautious trying to remain under the £75k limit.

[LondonManc]

You'd hope, but I think they prefer the stick to the carrot.

At least they can use a stick to make a rod for their own back I suppose.

[jamesbrown]

Agreed. but there needs to be some sort of incentive from HMG to get this money out of corporate accounts and into the wider economy.

You'd hope, but I think they prefer the stick to the carrot.

[LondonManc]

Not an uncommon situation, and you're probably taking the best approach, given what we know now. That being said, the legislation is only heading in one direction. Perhaps ER won't be removed entirely as an option, but HMT don't like contractors (or any companies for that matter) treating a corporate structure as a money box, i.e. retaining much more than is strictly necessary for trading purposes. The legislation could change a lot in the next few years, so there's an argument to max out dividends this year, at least up to the additional rate limit, as well as pension contributions. It doesn't change the situation long-term, and you will suffer that 25% (and loss of personal allowance), but it hedges to some degree. As a long-term contractor, it makes much less sense to accumulate large sums than it once did. Until now, I've not really given it a second thought, taking only what I need (which is modest), but the balance has shifted somewhat.

Agreed. but there needs to be some sort of incentive from HMG to get this money out of corporate accounts and into the wider economy.

[jamesbrown]

Yes and no, it's been slowly accumulating for many years as I don't go into higher rate. I would dearly love to have it in my personal account, because it could be put to good use, but I'd rather leave it there than pay 25% tax (soon to be 32.5%!) - with a view to taking it as capital gain via ER when the company is eventually closed.

Not an uncommon situation, and you're probably taking the best approach, given what we know now. That being said, the legislation is only heading in one direction. Perhaps ER won't be removed entirely as an option, but HMT don't like contractors (or any companies for that matter) treating a corporate structure as a money box, i.e. retaining much more than is strictly necessary for trading purposes. The legislation could change a lot in the next few years, so there's an argument to max out dividends this year, at least up to the additional rate limit, as well as pension contributions. It doesn't change the situation long-term, and you will suffer that 25% (and loss of personal allowance), but it hedges to some degree. As a long-term contractor, it makes much less sense to accumulate large sums than it once did. Until now, I've not really given it a second thought, taking only what I need (which is modest), but the balance has shifted somewhat.

[WTFH]

Yes and no, it's been slowly accumulating for many years as I don't go into higher rate. I would dearly love to have it in my personal account, because it could be put to good use, but I'd rather leave it there than pay 25% tax (soon to be 32.5%!) - with a view to taking it as capital gain via ER when the company is eventually closed.

You're making the assumption that by the time you get round to closing the company the rules have not changed and you are liable to pay tax on it anyway.


As I see it:
Option 1: Get the money out now, pay 25% tax, pay down (or pay off) your personal debts
Option 2: Take the money out when borrowing/mortgage rates go up. You'll have paid more money servicing your personal debts and you'll pay 32.5% tax on the money
Option 3: Leave the money in the company, keep servicing your personal debts as the interest rates rise and hope that tax rules on ER don't change. (currently 10%, but I could be wrong)

[LondonManc]

I have but it's company money not mine unfortunately.

Company money that you can pay out in dividends to the shareholders?

[Lewis]

Probably not - but it's a nice dilemma to have



Bank of Cyprus have some good deposit accounts, IIRC.

Yes and no, it's been slowly accumulating for many years as I don't go into higher rate. I would dearly love to have it in my personal account, because it could be put to good use, but I'd rather leave it there than pay 25% tax (soon to be 32.5%!) - with a view to taking it as capital gain via ER when the company is eventually closed.

[seanraaron]

Sorry .

I should laud the excellent banking system, of the City of London, for their expertise in money laundering, thus facilitating drugs and arms sales, all over the globe.

Better?

Yes! Now how to leverage that skill. IT doesn't really seem a good fit...