Reply to: Large sums of money - investment advice

[daveyowen]

Hello All,

Why can't you invest in land under your limited company, if you have sufficient funds ? If you manage to get planning permission for stables/ residential property, any net gain would only be taxable at 20/24% corp tax (unless someone can advise me differently....as I am weak in this area) and can be kept as a pension which you can take as dividends later in life.

If you bought personally, you would have the 4% loan interest to pay, and capital gain tax when selling the land/property.

I am very keen to hear peoples thoughts on this.

Thanks,

Daveyowen

ps. you can buy the land through a SIPP, and save on corp tax, but I personally don't have confidence in life assurance companies.

[ChimpMaster]

Here's another idea which a multi-jurisdictional accountant once mentioned in passing. I wonder if anyone can comment on this...

Why not take a year long (+ few days either side of the tax year) lifestyle holiday to a lovely location like the Virgin Islands, Bermuda or Singapore. Whilst at the same time becoming a non-uk resident for taxation purposes and deciding to establishing yourself a resident in the holiday location of choice. Which just so happens to coincide with a substantial dividend payment from the company.

IIRC you have to remain non-resident for 5 years or more.

[jonathanOnshore2010]

Here's another idea which a multi-jurisdictional accountant once mentioned in passing. I wonder if anyone can comment on this...

Why not take a year long (+ few days either side of the tax year) lifestyle holiday to a lovely location like the Virgin Islands, Bermuda or Singapore. Whilst at the same time becoming a non-uk resident for taxation purposes and deciding to establishing yourself a resident in the holiday location of choice. Which just so happens to coincide with a substantial dividend payment from the company.

[jonathanOnshore2010]

Interesting, we were thinking along the same lines....

I didn't realise the "bed and breakfast" clause. I think the convoluted way to avoid it, is to find a 3rd party finance company to make the commercial loan advances to you, secured against your dividend holding and future expection (ie. company reserves). But you'd need to find someone who knows about these things to structure it properly...

[Wanderer]

Yes legal, because it's a commercial loan with a market rate of interest.

You can pay interest or not, it's still possible. The advantage of paying interest currently 4% is that it avoids BIK and the interest becomes company profit and gets paid back to you minus tax.

Of course, it implies that the company has enough cash to loan to you for the house purchase.
And why let the cash sit in an offset a/c - just pay the house off no?

That's the whole point. You can borrow the money the company has set aside for CT/VAT/warchest/whatever and when your company needs it back you can withdraw it from the offset account again without any questions being asked.

[Wanderer]

Take out a commercial loan for this amount from the company, at the same terms as the mortgage (rate, repayments, term etc) - so it's not classified as a BIK

I've never done it but, it's quite possible from what I understand. I started a thread about this a little while back. It's called a "director's loan".

A couple of points:

The rate of interest you have to charge to avoid BIK is set by HMRC, I think it's currently 4%. There is no point charging any more than this.
If the loan is still outstanding 9 months after the company's year end then the company has to pay 25% of the value of the loan to HMRC (refundable once the loan is paid off)
You can't "bed and breakfast" the loan by paying it back to the company the day before the year+9 months is up then taking it out again the next day

Might be a good way of investing you company's retained profit though. I mean, a guaranteed safe (!) 4% return on investment is pretty good business sense, isn't it.

No one here will admit to doing this but someone I worked with once said he took his company income straight out of the company bank account and into his own one as soon as it arrived. I would hate to be his accountant, it must be a right headache to deal with the BIK and/or interest calculations for that sort of trading.

[ChimpMaster]

Legal? Any of the accountants on here wish to comment?

Yes legal, because it's a commercial loan with a market rate of interest. The fact that you're paying the loan back to a company of which you are director is of no consequence. The Ltd Co makes a profit on the loan, on which it pays corp tax, all fair and well.

Of course, it implies that the company has enough cash to loan to you for the house purchase.

And why let the cash sit in an offset a/c - just pay the house off no?

[PorkPie]

an idea
Buy a house in your name, with an offset account.
Work out how much spare cash in the company.
Take out a commercial loan for this amount from the company, at the same terms as the mortgage (rate, repayments, term etc) - so it's not classified as a BIK
Drawdown this loan into the offset account to reduce the mortgage payments
Pay off the commercial loan (into your company, boosting it's income an profit) alongside mortgage
Clever

Legal? Any of the accountants on here wish to comment?

[jonathanOnshore2010]

an idea
Buy a house in your name, with an offset account.
Work out how much spare cash in the company.
Take out a commercial loan for this amount from the company, at the same terms as the mortgage (rate, repayments, term etc) - so it's not classified as a BIK
Drawdown this loan into the offset account to reduce the mortgage payments
Pay off the commercial loan (into your company, boosting it's income an profit) alongside mortgage
Clever

[tractor]

..

Gold has been a good bet since Gordon breathed some life into the market by giving ours away....

Just sayin

[Jeebo72]

Get a shares account in company name (i use Barclays) and buy Santander shares...no tax on the buy & good divvy.

J

[LottoPlayer]

All good advice from the forum elders!

I'd just add, depending on the amount you have stashed away, there are still some small discretionary investment pension funds which are growing nicely, despite the tough economic climate. Might not be a bad idea to put some into a fund which will provide a nice return to retire on! (Not all of it though!!)

[ASB]

Do share purchases in the company name need to go through a trading account in the company name?, i.e. open a separate account, or is there a way to ensure the shares are in the company name even if bought through a personal account?

It should hopefully not be a problem to open an additional brokerage account in the company name. This is what I did years ago with no issues.

An alternative would be to open an additional (but separate) account in your own name and give it a designation like a/c MyCo. Then produce a simple trust deed which notes that you are acting as trustee for MyCo - this being a simple bare trust. You might want to get the trust deed "stamped" at the relevant capital taxes office of HMRC (used to be in Truro, don't know if it has moved).

Google: "trust deed" for "bare trust"

You may also wish to have a quick chat with your accountant to ensure that the above is still broadly valid.....

Opinion by the accountants seems to be divided about the efficacy of holding ltd cos assets in trust (e.g. using this as a wheeze to offset company funds against a mortgage)

[Scrag Meister]

Do share purchases in the company name need to go through a trading account in the company name?, i.e. open a separate account, or is there a way to ensure the shares are in the company name even if bought through a personal account?

[anothercodemonkey]

That would be the usual outcome, but:-

- The company doesn't have to be listed.
- If the company is listed overseas and there is not an appropriate DTA with the country concerned then it is still taxable (in effect if the company is registered in a tax haven then the dividends will still be taxable).

You are right on both counts.
DTA is double taxation agreement.

Essentially if you buy shares in a UK company you don't pay corp tax on the divs.

One thing I forgot to mention, If you are spectacularly successful at investing though (i.e. your investment incomes starts to outstrip the contracting income) then you might end up being considered a close investment company and get taxed at 30% (google for more details). However you would need to be doing pretty well to get to that stage! E.g. £90k of dividend income would be £2m of shares at 4.5% so probably a nice problem to have.