Invest my ltd company funds?

[Jockman]

desolate said:

PurpleMoonlight said:

There is no legislated maximum, only a maximum that is tax free.

Ok thanks. So it appears I am wrong and that everything over 40k does get a tax charge on it.

It's a while since we did this and the FD of the old firm is dead and the accountant retired so I can't ask.

We must have been using the allowances of all the members.

Still I suppose you could set up a SSAS and get 80k a year into a single investment vehicle for you and your partner.

Do you mean wife?

If so then, no, it’s not that simple. See my post above.

[Jockman]

CzechItOut said:

Is there any limitation on the employers contribution in relation to the director's salary?

Employer contributions do not link wth salary level. They must satisfy the HMRC criteria though.

[Jockman]

PurpleMoonlight said:

Jonny TVR said:

I'm maxed out at £40K a year pension contribution and I don't have a wife. Can I theoretically pay £40K a year to each of my children who are 10, 13, 15. Not sure I would want to but possibly pay something into each a year?

I think you can personally pay £2,880 pa into each and basic rate tax would be added to it.

Not for an employer contribution obviously.

For a personal contribution, yes, I do. Some are not even my children. Tax relief is awarded at the recipients rate, regardless of your rate.

[anonymous-user]

Jockman said:

Do you mean wife?

If so then, no, it’s not that simple. See my post above.

With everything set up correctly HMRC are on a very sticky wicket trying to denigrate the contribution of a director of a successful Ltd company.

Sorry if I got your hopes up Jockman - a little knowledge is a dangerous thing. Something I have been demonstrating for 20 odd years.

Edited by anonymous-user on Friday 16th March 09:08

[Jockman]

desolate said:

Jockman said:

Do you mean wife?

If so then, no, it’s not that simple. See my post above.

With everything set up correctly HMRC are on a very sticky wicket trying to denigrate the contribution of a director of a successful Ltd company.

If, in this example, the wife does not actually work for the company then they can challenge the arrangement. If the wife is a shareholder she will have certain fiduciary responsibilities, including, though not limited to, attendance at shareholder meetings, voting, etc as well as her non-controlling director responsibilities.

These issues support a valid case for contributions but you would be brave to think they support a full £40k contribution. If it helps, we do not go above £12k pa for wives.

[Jonny TVR]

My father is a director of my business. Can the business give him £40K a year into his pension? He is 75 years old. He doesn't need or want the money but could he then gift it back to me or my children? I suppose there are IHT issues with that?

[Jockman]

desolate said:

Sorry if I got your hopes up Jockman - a little knowledge is a dangerous thing. Something I have been demonstrating for 20 odd years.

Edited by desolate on Friday 16th March 09:08

Lol. Just noticed the edit. No worries mate. Is it really only 09.15 back home ???

Thanks for the insurance advice you give. I always think a little knowledge is good as it can I still an interest in a topic that leads to more knowledge when the likes of PM or Julian get involved.

[anonymous-user]

Jockman said:

Lol. Just noticed the edit. No worries mate. Is it really only 09.15 back home ???

Thanks for the insurance advice you give. I always think a little knowledge is good as it can I still an interest in a topic that leads to more knowledge when the likes of PM or Julian get involved.

I think I was clouded by the fact we ran a SSAS - this wasn't a family business so it was a bit of a beast. I am now left with the rump of the SSAS as the others went into their own sipps and I still find it a very flexible investment vehicle

[PurpleMoonlight]

sidicks said:

Is the £40k reduced to £10k for high earners, or does this not apply in this scenario?

Gees, they make is insanely complicated and I have to say I don't know a definite answer.

Looking at the HMRC examples relating to the way the excess contribution tax charge is calculated it appears that the excess contribution is not 'income' for the purpose of calculating the 'threshold income' which is the first stage for taper testing. The threshold income does not include employer pension contributions.

The examples of this A J Bell guide also appear to support this. The excess contributions are not added in to calculate threshold income.

https://www.youinvest.co.uk/sites/default/files/AJ...

I have never had a client want to make an excess contribution as I predominantly deal with business owners and SSAS's, and it doesn't make sense to do so.

[dodgydave]

Jonny TVR said:

My father is a director of my business. Can the business give him £40K a year into his pension? He is 75 years old. He doesn't need or want the money but could he then gift it back to me or my children? I suppose there are IHT issues with that?

Jonny, No, You have to be under 75 to start a SIPP.

[vindaloo79]

Something else which is tax efficient is the claiming of nursery fees paid by the ltd with a voucher scheme, the window of opportunity looks to have been extended on this for six further months I noticed earlier this week.

We currently claim the £243 per month from the ltd for myself as a director. If your spouse was a director/employee then you can double that and claim extra £243. This would go a long way towards childcare costs in a tax efficient manner.

[trowelhead]

Been looking into this again recently.

Want to invest ltd co surplus but not lock into a pension.

Found this article, seems in short you can setup another ltd co - inter company loan, setup share account and invest...

https://www.foxymonkey.com/how-to-invest-your-comp...

[Alpinestars]

trowelhead said:

Been looking into this again recently.

Want to invest ltd co surplus but not lock into a pension.

Found this article, seems in short you can setup another ltd co - inter company loan, setup share account and invest...

https://www.foxymonkey.com/how-to-invest-your-comp...

Nothing stopping you doing that. But his rationale for not using the same company because it might become “a close investment holding company” is tosh.

The main reason you might want two separate companies is to make sure your main trader qualifies for ER. Although investing from the trader might still qualify.

[Jonny TVR]

Alpinestars said:

Nothing stopping you doing that. But his rationale for not using the same company because it might become “a close investment holding company” is tosh.

The main reason you might want two separate companies is to make sure your main trader qualifies for ER. Although investing from the trader might still qualify.

Am I right in thinking you move funds from your core business to the new investment company then in say 10 years you liquidate the investment company and all the proceeds go to you and you pay 10% ER tax on it? Therefore keeping your core business but extracting the profit from it at 10%

[Alpinestars]

Jonny TVR said:

Alpinestars said:

Nothing stopping you doing that. But his rationale for not using the same company because it might become “a close investment holding company” is tosh.

The main reason you might want two separate companies is to make sure your main trader qualifies for ER. Although investing from the trader might still qualify.

Am I right in thinking you move funds from your core business to the new investment company then in say 10 years you liquidate the investment company and all the proceeds go to you and you pay 10% ER tax on it? Therefore keeping your core business but extracting the profit from it at 10%

No. The Investment Company won’t qualify for ER. The point is that it’s (non trading) activities could taint your ability to get ER on your trading activities. Currently you should get ER on a disposal of shares in your trading company. If that company carries on “significant” non trading activity, eg investment activity, that could mean a disposal of its shares no longer qualifies for ER. That’s what you need to avoid. And a new company “on the side”’, solves that problem.

[Jonny TVR]

Alpinestars said:

No. The Investment Company won’t qualify for ER. The point is that it’s (non trading) activities could taint your ability to get ER on your trading activities. Currently you should get ER on a disposal of shares in your trading company. If that company carries on “significant” non trading activity, eg investment activity, that could mean a disposal of its shares no longer qualifies for ER. That’s what you need to avoid. And a new company “on the side”’, solves that problem.

I see .. I got excited then for a minute!

[sleepezy]

The issue you have with a '20%' guideline is that it is exactly that, a guideline. There's a risk that HMRC decide that the investment income breaches the qualification even if the recorded return is less that the 20% and there's a risk that they reduce the 20% guideline too.

You could potentially end up having historically benefited from an investment income within the company to find that the rules have changed when you come to take ER and the company no longer qualifies...

That's not the worst case situation of course, they could change the ER rules completely to disapply them to contracting companies so it's all a bit crystal ball gazing' anyway.

For what it's worth, my approach has been to separate the two. Simple enough to do and although it doesn't completely extinguish any risks (which is impossible, who knows what the rules will be particularly if Corbyn gets power...) it does mitigate them to an extent that I am comfortable with.

[Zoon]

zubzob said:

Just had a quick google and if I’m reading this right, up to 20% of income can come from investments. So an example. Annual profit is 100k. That mean 20k investment income permitted. At an optimistic 10% return, you can invest 200k capital safely without triggering concern.

So 2x annual profit in investment capital is safe?

Does this sounds about right?

But then corp tax on the return is due which kind of offsets the point.

Yes I thought that as well.
Better to pay dividend tax up to the threshold and then max your pension out with company contributions.

[Alpinestars]

zubzob said:

Can anyone give rough guidelines to what constitutes a risk of compromising ER?

In terms of multiples of annual profits maybe?

Is this based on guidance or precedent?

They normally look at income, assets and management time. Normally keeping below 20% on 2 of the 3 is accepted. But as I said earlier, it’s not a statutory test.