Investing in the name of business

Where businesses find themselves in the fortunate position to have funds accumulating in their company accounts, this can leave them between a bit of a rock and a hard place.

The tax implications for businesses

Where the profits are paid to directors – whether through salary or dividends – it is likely that this will lead to further tax liability on the individual, on top of the corporation tax that has already been paid on the profits made by the company themselves.

To avoid paying further tax, a lot of individuals choose to restrain the funds within the business, which can sit in a low-earning cash-based account.

Of course – as eluded to in my earlier blog – these funds could be extracted in a tax-efficient way into a pension, however, this arrangement may not provide sufficient flexibility for the individual or the business, as the funds are then tied away in the individual’s name until at least age 55 (rising to 57 from 2028).

Investing in a unit trust portfolio

Where businesses wish to retain funds within the business but would like higher potential growth on the funds, there is an option to invest in a unit trust portfolio in the name of the business. This portfolio can be tailored to the preferences of the business and any profits could potentially be subject to further tax. This route has the potential to achieve higher growth in the medium to longer-term, as opposed to sitting in a low earning cash-based account. Investing the funds has greater flexibility than a pension, where funds can be accessed if needed.

If you’re interested in finding out more about the information discussed in this article, get in touch with our Financial Adviser, Greg Davie, on gdavie@gilsongrayfinancial.co.uk or on 07862 258 405.

 

Newsletter 
Sign up to our News & Insights!