Inheritance - opening a ltd company to invest

[997GT3]

Hi guys – need some advice/thoughts on the below please:

Situation is: I have lost both parents in the past few years, and have some inheritance coming in which I’d like to do some investing with. This may be a combination of buying assets which generate income, or importing goods / selling, or general investing in other businesses.

I am in the 45% tax bracket, wife is in the 40% bracket both PAYE. We have a family member (retired) living with us on zero income. Wife and I have full time jobs not likely to change, over 20 years to retirement.

Now, the inheritance is split 50/50 with a sibling, and contains a let commercial property which has a regular income.

My understanding is: as soon as the probate is done, and that income starts coming my way – I’ll be paying 45% tax on it when I complete my self assessment (I believe there is a £1k a year tax allowance for property income, the monthly income I’d get is nearly £1k).

My second understanding is, if start making money somehow from the cash that I inherit (invest in a business, buy more property, etc) then one way or another any gains will also be taxed by CGT, income tax etc.

So, I have led myself down a path to start considering opening a ltd company, and transferring the commercial property to that (or an SPV linked to a ltd company for the property only) and then start either investing or undertaking any business ventures through the company. Therefor I can manage any profit / investment gains with more control and re-invest before paying corporation tax. I get that there will be some costs with an accountant needed for the books etc, but those costs will be much lower I feel than doing these activities outside of a company vehicle.

Am I missing something here or would doing the above make sense to you? How would you do it any differently?

[Steve H]

I’d suggest you have a look on the Finance section. Intelligent Money are sponsors on there and are very helpful with guidance on most tax and investment matters .

[jeremyc]

Steve H said:

I’d suggest you have a look on the Finance section. Intelligent Money are sponsors on there and are very helpful with guidance on most tax and investment matters .

Moved there for you.

[OutInTheShed]

You need to read all the tax stuff about 'investment companies'.

A company which only does investments is treated differently from one which mostly trades as a business.

I think transferring the property to the company is a sale which attracts stamp duty?
You could look into re-directing the inheritance by a Deed of Variation, but I don't know if you can use that to bung the property into a LTD company.
You could maybe use a trust.

What is your end game? I guess the plan is to eventually extract money from the company as a basic rate tax payer? or to direct it to younger generations maybe.

Unless you do your own company tax work and book keeping, accountancy is not a trivial cost.
I've DIY'd for a straight forward contractor's LTD Co, but keeping track of the rules for an investment Co might be a challenge.

[997GT3]

OutInTheShed said:

You need to read all the tax stuff about 'investment companies'.

A company which only does investments is treated differently from one which mostly trades as a business.

I think transferring the property to the company is a sale which attracts stamp duty?
You could look into re-directing the inheritance by a Deed of Variation, but I don't know if you can use that to bung the property into a LTD company.
You could maybe use a trust.

What is your end game? I guess the plan is to eventually extract money from the company as a basic rate tax payer? or to direct it to younger generations maybe.

Unless you do your own company tax work and book keeping, accountancy is not a trivial cost.
I've DIY'd for a straight forward contractor's LTD Co, but keeping track of the rules for an investment Co might be a challenge.

thanks for that. Yes I have previously read about "investment companies" and how they are treated differently, I will continue to read up on it.

The commercial property is half owned by me, so only 50% needs to be transferred, and overall the value is likely to be around £250k - so should be below stamp duty levels so no large issue there. I have undertaken a deed of variation before, so will look into this with the probate lawyers, and will examine the "trust" mechanism also.

End game - is to probably extract some money through the family member that lives with us on zero income, then keep using the money to either buy more assets or "trade". Could be importing goods from other countries and selling in UK market, ideas like that. Just keep the money active, and minimise tax. If there's nothing useful to do with the money at the end of an accounting period, possibly open a pension plan and "invest" it there. Younger generations are very young (under 4) so long time until it gets directed to them.

I have opened a ltd company in the past when I did some consulting work, so am aware of accounting costs. The rough income from the commercial property will be around £10k a year (my share) so if I have to pay full income tax on that alone it's a lot more than accountancy fees for a basic ltd company, unless I'm missing something?

Cheers

[wattsm666]

Have you thought about a deed of variation into a trust for your kids. They maybe young but in later life they could then potentially have income from the trust for school fees/Uni etc.

Depends if you need the asset in later life.

Talk to an accountant