New Ltd Company - how best to tax-proof investment/divs ?

Somerset

Title says it all and I think the answer is 'no'.

I'm setting up a limited company with four others, all having 20% of shareholding. I'm putting up some capital and the others are putting in the time/labour.

If it were a quoted company, I could stick the 'purchase cost' of the shares and any future dividends into a share isa to protect any appreciation/dividends. Obviously it's not a quoted company, just a small start-up. But is there any equivilent ? Any experts out there ?

middlepuss

Don't know if you can do this - my guess would be no. But if your total income including dividends is below the 40% income tax threshold you have no tax to pay on the dividend anyway.

Somerset

No, I'm in the 40% bracket. Was just hoping some bright spark knew of a way to 'wrapper' a new start-up, so that if it does well ( fingers crossed ) I could shelter my investment/dividends.

MrBeans

Somerset wrote: »

No, I'm in the 40% bracket. Was just hoping some bright spark knew of a way to 'wrapper' a new start-up, so that if it does well ( fingers crossed ) I could shelter my investment/dividends.

If you find a way to shelter capital gains and dividend income from a ltd company let us know! Have you tried posting on Taxationweb?

slipp_digby

Do you not think a basic salary of 4.5k and then a chunk of dividends in excess of 30k per annum TAX free is not enough incentive?

Do you want the ****ing moon on a stick or what?

spursboy

Somerset wrote: »

Title says it all and I think the answer is 'no'.

I'm setting up a limited company with four others, all having 20% of shareholding. I'm putting up some capital and the others are putting in the time/labour.

If it were a quoted company, I could stick the 'purchase cost' of the shares and any future dividends into a share isa to protect any appreciation/dividends. Obviously it's not a quoted company, just a small start-up. But is there any equivilent ? Any experts out there ?

As a starting point, and before you think about future gains, I would consider your initial investment. Would the company qualify for EIS? Then you would be able to get income tax relief on your initial investment.

If you hold the shares for 3+ years then any gain will be exempt from CGT.

* This is a very brief overview - I would suggest reading:

http://www.hmrc.gov.uk/eis/

and speaking with an accountant.

Somerset

slipp_digby wrote: »

Do you not think a basic salary of 4.5k and then a chunk of dividends in excess of 30k per annum TAX free is not enough incentive?

Do you want the ****ing moon on a stick or what?

You're making assumptions all over the place.

I will not be taking a salary, basic or otherwise. I am already employed paying PAYE/NIC on that.

Why would any dividend income be tax free ? The few shares I have which are not in a share-isa, have basic rate deducted and then I pay the residue due after my tax return is submitted. Why would the dividend income from this start-up be any different ?

Merlin_Accounts

Hi

A dividend paid to you from a UK company in which you hold shares comes to you carrying a notional 10% tax credit. So a dividend of, say, £900 carries a £100 tax credit, and the total dividend is deemed to be £1000 gross for tax purposes.

Provided your gross income in the tax year, from all sources including gross dividends, does not exceed the higher rate threshold there is no further tax due on the dividend, so in essence it is tax free. If you went over the threshold your additional tax on the amount of gross dividend that goes over the threshold is taxed in your hands at 32.5%, less the 10% tax credit (effectively 22.5% extra tax).

The company paying the dividend pays it out of profits that have already been subjected to corporation tax.

Hope this clarifies your query on the taxation of dividends.

Somerset

Merlin

Thanks for that. My response was really to slipp_digby who said :

then a chunk of dividends in excess of 30k per annum TAX free is not enough incentive?

when I had already said :

No, I'm in the 40% bracket

I was simply asking him how a higher rate tax-payer could receive 30K of dividend income p.a. tax free ? I'd like to know.

spursboy thanks for the info on EIS - it looks a possibility. I'll have a chat with someone.

slipp_digby

Somerset wrote: »

You're making assumptions all over the place.

I will not be taking a salary, basic or otherwise. I am already employed paying PAYE/NIC on that.

Why would any dividend income be tax free ? The few shares I have which are not in a share-isa, have basic rate deducted and then I pay the residue due after my tax return is submitted. Why would the dividend income from this start-up be any different ?

didnt see your second post about your PAYE which you (importantly) omitted in your original post. os the answer is no, you can't.

I believe what you are asking is 'is there a way of avoiding taxation on dividned income' and i dont think as a shareholder and/or director you will get massive joy from EIS

EIS will only give tax relief on the investment and not on further dividends and the impact will be limited to year one anyway.

do you really think that thousands of small business owners would be paying tax on dividends year on year, or limiting their dividend income if there was an obvious alternative?

i think you are being rather greedy

Yorksblue

What about putting the shares in your wifes name - if she is not a higher rate tax payer any dividends she recieves are deemed tax paid as noted above.