How to spend (invest) my £75k
Discussion
JapanRed said:
1) Withdraw the £75k (and similar each year) to pay off the mortgage. Financial advisor says this doesnt make sense as I will pay 40% on the money when I take the dividends.
Higher rate of tax on dividends is 32.5%, this is assuming you're on the 40% tax band for your regular salary. The first £5,000 of dividends is tax free. Upper rate (45%) tax payers pay 38.1%, but this shouldn't affect you by the sounds of it. The Company pays 20% corp tax (19% from next year, reducing to 17% by 2020 I think), on the nett profits. JapanRed said:
2) Withdraw the money and invest it personally
2a) I could buy an appreciating classic car such as F430 or lambo Murcielago
2b) I could buy a few watches that will likely appreciate.
2c) I could invest in standard investments that my FA has advised
Same as above really, you'll be taxed on the money if you withdraw it as either dividends or wages. 2a) I could buy an appreciating classic car such as F430 or lambo Murcielago
2b) I could buy a few watches that will likely appreciate.
2c) I could invest in standard investments that my FA has advised
JapanRed said:
3) My LTD company could invest the money. This is what my FA advises but I'm not sure it adds up. If my company invests £50k and makes £10k profit, the company would pay 20% tax leaving £8k, I would then pay 40% tax on this leaving just over £5k. It just doesnt seem worth it by the time all the tax has been paid.
This isn't quite right. If you withdraw the money as dividends, you get £5k free then the rest is taxed at 32.5%, as per the answer to scenario 1. You could withdraw it as wages, you'd of course pay 40%, but the company pays no corporation tax as in effect it makes no profit. I would be careful to avoid hitting the 45% threshold though. You could, of course, do a combination of both wages and dividends. You need to do some sums, I'd suggest a simple spreadsheet will show you what's best.
Don't forget the National Insurance element for both you and the company if you take wages, which will add a significant sum to the bill (2% for you I think as you're probably over the upper earnings limit, 13.8% for the Company)
I suspect you will find Corp Tax and Dividends works out as being the most tax efficient.
JapanRed said:
In my head option 2 is the best. Yes I will pay 40% tax initially but then I could potentially make this 40% back by having a car. Even modest estimates suggest I could make 20% on some of those higher end cars, which if all else fails will bring me enjoyment and it means I would have recouped 20% of that 40% tax back...
Am I missing something here? Are there any other options?
You'll still have to pay tax on the gains you make selling the cars. Assuming you declare them of course, but if you don't and get caught...Am I missing something here? Are there any other options?
It's not a zero sum game, the tax is due whichever way you look at it. I would be inclined to talk to an accountant who knows what he's talking about.
ellroy said:
Speak to an advisor chap, but in short you can get tax relief assuming you've paid sufficient income tax, at 30% on up to £1m. It's not without risks, but a good EIS could return between, say 90p and 110p, after you've already had 30p in relief and the return is also free of all tax. So a return in total of between 120-140p free of tax after approx 3 years for example. Remember, there are no guarantees with this and they are high risk.
If you took funds out of a business, £5k nil rate allowance for divs, basic rate at 8.5% etc you could use the funds to offset your income tax bills each year, in part or full, going forward. As some of these aim to mature after 3 years you can get to a point where they self fund, as each year you can roll the money back into a new one and accrue the tax relief afresh.
Seek advice, you need a specialist with these things, as well as a decent appetite for risk.
Thank you - i'll be looking into this!If you took funds out of a business, £5k nil rate allowance for divs, basic rate at 8.5% etc you could use the funds to offset your income tax bills each year, in part or full, going forward. As some of these aim to mature after 3 years you can get to a point where they self fund, as each year you can roll the money back into a new one and accrue the tax relief afresh.
Seek advice, you need a specialist with these things, as well as a decent appetite for risk.
Jockman said:
In an EIS you risk 42p in the £ as a higher rate tax payer. That is all.
If you choose a 'vanilla' investment which includes tangible assets and is only aiming for a 1.2x equity return over the period then it's up to you to determine whether there is much risk here at all.
Good post.If you choose a 'vanilla' investment which includes tangible assets and is only aiming for a 1.2x equity return over the period then it's up to you to determine whether there is much risk here at all.
Ash170990 said:
sidicks said:
Fine to enjoy the money you've earned, but best not to pretend it's any sort of 'investment'!
I did say for a bit of fun lol the guy must have worked hard enough to enjoy the money surely.JapanRed said:
I'm not subcontracting. My accountants are aware of IR35 and I am fine.
I wasn't sub-contracting either I was contracting but got hit with IR35 even though contract reviewed, working practices etc, tax owed was around £65k after fines, interest etc was closer to £100k. I only mention it as most people on here who mention ltd are IT contractors, general view is they will never look at you but reality is they do and see it only getting worse in next 12months.PostHeads123 said:
JapanRed said:
I'm not subcontracting. My accountants are aware of IR35 and I am fine.
I wasn't sub-contracting either I was contracting but got hit with IR35 even though contract reviewed, working practices etc, tax owed was around £65k after fines, interest etc was closer to £100k. I only mention it as most people on here who mention ltd are IT contractors, general view is they will never look at you but reality is they do and see it only getting worse in next 12months.Gassing Station | Finance | Top of Page | What's New | My Stuff