Retain profits in company to make investments?

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EAMONP

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Hi, I wonder if anybody with experience could help with my question. My situation is, I have two ltd companies making a profit after my partner and I draw a salary and make pension contributions. In previous years we both extracted the profits as salary and as expected ended up with high income tax bills. I feel the business may have a lifetime of another 5-10 years and would rather not draw these funds as salary now.
Would it make sense to set up a holding company to make investments and then only draw down income when we have no other income in 5-10 years time? I know we would still be taxed but we could keep our tax payments to 20% if we withdrew small amounts each year.

I look forward to hearing any advice you may have on this subject, thank you.
 
Askaboutmoney is not really designed to answer complex tax planning points like this. You need to pay a professional tax advisor who can take all your circumstances into account.

But as a general point, and I am not a tax specialist...
If you draw down only enough profits now to use up your 20% tax band, the company will pay Corporation Tax on the profits left in the company.
I think that if the profits in the company are from investments, they will be taxed at 25%.
Then when you draw out the profits as salary, they will be taxed at your top tax rate.

Unless you wind up the company and then you will pay 33% CGT on the assets - assuming the initial share capital was zero.

So, it seems much cleaner for you to distribute all the profits either as salary or pension contributions.

Brendan
 
Hi Brendan, thank you for the reply. I did ask my accountant but did not receive a clear answer from him. Your answer has been helpful, thanks again.
 
Be careful to structure it correctly in order not to lose your Retirement Relief entitlement. Retirement relief in the two trading co's would probably be best with a share buy back (with succession) or a liquidation at retirement(cessation). This is unless you want to set up the investment company for income after retirement(even then it would be structured differently). It would be worth the money to consult a larger firm for once off tax advice. Get a quote and they will prepare a tax report for you. Horses for courses.
 
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