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Personal investment companies

Including Financial Independence and Retiring Early (FIRE)
Spet0789
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Personal investment companies

#200299

Postby Spet0789 » February 10th, 2019, 12:25 pm

Has anyone experience with a PIC? Or more broadly holding investments in a limited company?

I aim to FIRE in 2-3 years but will have a ‘tail’ of taxable income for about 5 years after that. The attraction for me of a PIC would be to invest over those years and allow all of the dividend income to roll up and be reinvested inside the PIC. As I understand it that would create no corporation tax liability. Then when my income from employment has ceased I would start to draw out the returns as a basic rate tax payer.

Does this make sense?

PinkDalek
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Re: Personal investment companies

#200306

Postby PinkDalek » February 10th, 2019, 1:12 pm

This looks like a question for Taxes (Practical Issues). Coincidentally, I saw a similar topic yesterday but can't recall where it was!

Spet0789 wrote:... The attraction for me of a PIC would be to invest over those years and allow all of the dividend income to roll up and be reinvested inside the PIC. As I understand it that would create no corporation tax liability. Then when my income from employment has ceased I would start to draw out the returns as a basic rate tax payer. ...


As you suggest, UK companies do not pay Corporation Tax on UK sourced dividends, as far as I am aware.

Corporation Tax ("CT") is a tax on profits, including chargeable gains on the disposal of chargeable assets. Indexation relief for companies was frozen recently so will not be available for new investments.

The current rate of CT is 19% (wef 1 April 2017), reducing to 18% (wef 1 April 2020). The present Government intends to reduce that 18% to 17% (wef 1 April 2020).

The future dividends from the company to you can, presently, be set at whatever rate you so desire. Thus you can time your taxable income to suit, bearing in mind the current "dividend allowance" of £2,000 per annum.

However, when you then break up the company in future years (or you make disposals over the years), the company will be paying to CT on the gains (if any). The net, presumably via a liquidation process at a cost, will come out as chargeable gains (or possibly income if it can be structured correctly), on the shareholder. At whatever rates then apply.

Spet0789
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Re: Personal investment companies

#200318

Postby Spet0789 » February 10th, 2019, 2:23 pm

Thanks. I put the query here as there are other potential implications beyond taxation such as the costs of maintaining the PIC and the practicalities of opening accounts with brokers as a company not an individual.

PinkDalek
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Re: Personal investment companies

#200354

Postby PinkDalek » February 10th, 2019, 5:02 pm

I didn’t spot those questions.

Online Companies House filing fee £13, for what used to be called the annual return.

The accounting, tax etc depends on your capabilities. Many do all that for free themselves. See this topic at Running your Business (which answers some questions):

viewtopic.php?f=45&t=10651

As for brokers, I think, for instance, Hargreaves Lansdown may permit companies. Dare I say it but the Brokers board covers this aspect quite often.

Hariseldon58
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Re: Personal investment companies

#200659

Postby Hariseldon58 » February 11th, 2019, 7:34 pm

My (limited) understanding is that PIC are useful for very high net worth individuals, directors loans etc. are very efficient tax wise.

I’d pay for advice !

hiriskpaul
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Re: Personal investment companies

#200954

Postby hiriskpaul » February 12th, 2019, 10:22 pm

Not really a PIC, but several years ago I invested in preference shares within my personal consulting company. Dividends are free of CT and capital gains are at CT rates, with no annual allowance, but indexation allowance inflates away capital gains. At least it did until Hammond put a stop to indexation :( .

I have toyed with the idea of making an interest free loan to my company and investing the proceeds. I could then draw out the dividends from investments tax free as loan repayments. Have never taken this further, but interested to know if others can think of obstacles to prevent this. Company Articles would have to permit the investments of course, but mine are extremely wide. Ultimately though this is building up a future tax headache, especially now indexation allowance has been halted. No entrepreneurs relief for investment companies either.

I use Hargreaves Lansdown for my company account.

Cookie
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Re: Personal investment companies

#201617

Postby Cookie » February 15th, 2019, 5:26 pm

hiriskpaul wrote:Not really a PIC, but several years ago I invested in preference shares within my personal consulting company. Dividends are free of CT and capital gains are at CT rates, with no annual allowance, but indexation allowance inflates away capital gains. At least it did until Hammond put a stop to indexation :( .

I have toyed with the idea of making an interest free loan to my company and investing the proceeds. I could then draw out the dividends from investments tax free as loan repayments. Have never taken this further, but interested to know if others can think of obstacles to prevent this. Company Articles would have to permit the investments of course, but mine are extremely wide. Ultimately though this is building up a future tax headache, especially now indexation allowance has been halted. No entrepreneurs relief for investment companies either.

I use Hargreaves Lansdown for my company account.


H&L dont advertise their trading account online, you have to ring for a form. Interactive Investor is another, but H&L trading account is quite good fees for shares.

You also need an LEI now, Bloomburg is probably the cheapest for this

Would you not need it to be an interest charging loan, otherwise there would be no proceeds and you would just return capital you put in?

I know some do loan their funds to the company if they are going to exceed their personal tax allowances

You run into Director Loans rules doing loan from company to individual, charging HMRC rates of interest helps, but I do feel it is a red flag to HMRC to come and investigate me

Do you invest through your trading company or via a holding company (investment company)? In a holding company structure you can either make a loan from the trading company to the holding company or hold shares which receive dividends from the holding company tax free

The holding company is then separate from the trading company if you were to claim Entrepreneurs Relief on the trading company, so no issues with it being disallowed due to your trading company being considered an investment company

There is obviously a cost to running another company

I have to admit I havent done this, but the premise makes sense

Spet0789
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Re: Personal investment companies

#201806

Postby Spet0789 » February 16th, 2019, 5:21 pm

Thanks all for input.

Certainly something I’ll keep in mind but agree it’s worth taking advice on.

Charlottesquare
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Re: Personal investment companies

#202365

Postby Charlottesquare » February 19th, 2019, 3:29 pm

Cookie wrote:
hiriskpaul wrote:Not really a PIC, but several years ago I invested in preference shares within my personal consulting company. Dividends are free of CT and capital gains are at CT rates, with no annual allowance, but indexation allowance inflates away capital gains. At least it did until Hammond put a stop to indexation :( .

I have toyed with the idea of making an interest free loan to my company and investing the proceeds. I could then draw out the dividends from investments tax free as loan repayments. Have never taken this further, but interested to know if others can think of obstacles to prevent this. Company Articles would have to permit the investments of course, but mine are extremely wide. Ultimately though this is building up a future tax headache, especially now indexation allowance has been halted. No entrepreneurs relief for investment companies either.

I use Hargreaves Lansdown for my company account.


H&L dont advertise their trading account online, you have to ring for a form. Interactive Investor is another, but H&L trading account is quite good fees for shares.

You also need an LEI now, Bloomburg is probably the cheapest for this

Would you not need it to be an interest charging loan, otherwise there would be no proceeds and you would just return capital you put in?

I know some do loan their funds to the company if they are going to exceed their personal tax allowances

You run into Director Loans rules doing loan from company to individual, charging HMRC rates of interest helps, but I do feel it is a red flag to HMRC to come and investigate me

Do you invest through your trading company or via a holding company (investment company)? In a holding company structure you can either make a loan from the trading company to the holding company or hold shares which receive dividends from the holding company tax free

The holding company is then separate from the trading company if you were to claim Entrepreneurs Relief on the trading company, so no issues with it being disallowed due to your trading company being considered an investment company

There is obviously a cost to running another company

I have to admit I havent done this, but the premise makes sense


If you have a holding company holding the shares in the trading company ER will not be on point re selling the trading company shares, ER only applies to individuals and in such a scenario it would be a corporate entity holding the shares in the trading company.

You might get by with associate companies and an inter company loan from trading to investment but that loan may in itself put at risk ER relief re the trading company.

scrumpyjack
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Re: Personal investment companies

#202368

Postby scrumpyjack » February 19th, 2019, 3:44 pm

There must be problems or PICs would be more widely used, I would have thought.

eg I presume the PIC would pay tax on capital gains realised in the PIC and you would then pay tax on whatever route you used to extract cash from the PIC - double taxation?

PinkDalek
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Re: Personal investment companies

#202417

Postby PinkDalek » February 19th, 2019, 7:19 pm

scrumpyjack wrote:eg I presume the PIC would pay tax on capital gains realised in the PIC and you would then pay tax on whatever route you used to extract cash from the PIC - double taxation?


I thought I covered much of that in my reply back here viewtopic.php?p=200306#p200306.


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