Tax on cash gift from my LTD company.

ba2009

Hi,

Ive been a fan of MSE for a while now but never actually had to post due to the fact that Ive always found everything i need by using the search tool. However, now Im stumped.

I own a small ltd company on the side of my day job. It's a consultancy business so it has a lot of income and hardly any outgoings, resulting in a evergrowing account balance. I do not take anything out of the business in a wage or otherwise as its hopefully going to support me in the future when I give up my day job.

I now want to give my 2 sons some money out of the business but however I try and do this, I always come up against a moutain of tax. The smallest amount so far has been 35%. I understand that I will have to pay some tax on the cash gifts but when Im already paying so much tax, 35% on a gift seems ridiculous!

Is there any way that I can give them some of the money without being taxed so much?

Both sons are in full time employment (not within my company). They both earn around £12-13K before tax a year. They are aged 23 and 25 and both live at home.

Any adivce would be appreciated.

Cheers.

P.S I want to give them around £5000 each and hopefully I will be able to do this a couple of times a year!

MrCarrot

You can withdraw the money as dividends yourself, and then give the money to your sons.

Dividends do not incur any national insurance, only corporation tax (which I think is currently 21%). That's going to be about the cheapest way of doing it I think.

One problem I can foresee, is that while normally you wouldn't pay any income tax on a dividend, if it pushes your personal income into the higher rate tax threashold it's going to have a negative knock on effect on your tax bill.

I guess you could give your sons shares in the business and give them the dividends directly.

fengirl_2

You have encountered the problem which most directors of small companies come across eventually - how to get the money out of the company. Of course any money paid to you must suffer tax and possibly NIC at source. Any gifts to your sons would nopt be an expense of the company and putting your sons on the payroll would also incur tax and NIC. You are in the same position as the rest of us when we want to give money to our children - we have to do it out of taxed income, otherwise we would all set up companies.

MrCarrot

fengirl wrote: »

You have encountered the problem which most directors of small companies come across eventually - how to get the money out of the company. Of course any money paid to you must suffer tax and possibly NIC at source. Any gifts to your sons would nopt be an expense of the company and putting your sons on the payroll would also incur tax and NIC. You are in the same position as the rest of us when we want to give money to our children - we have to do it out of taxed income, otherwise we would all set up companies.

He can limit the amount of tax though, using the method I have described above. Assuming nobody is pushed into the higher rate of tax, it means the money would be taxed at 21% rather than 22% + National Insurance (probably almost 30% in total I am guessing).