Personal investment companies

The UK’s rate of corporation tax on “company” income is an unbelievably low rate of 19{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} currently compared to a current top rate of 45{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} on “personal” income.  This disparity of tax rates between “company” and “personal” income is leading to an increasing number of high net worth individuals (HINWIs) holding their investments via a UK company rather than directly in their personal names or via trusts which are complex and subject to “entrance”, “exit” and “periodic” charges.  UK companies can therefore be considered investment “wrappers” alongside traditional investment vehicles such as private unit trusts and insurance bonds.

The HINWI can set up a “personal” or “family investment company” and inject the funds into it by way of loan, remaining sole director and shareholder.  He may also be the investment adviser or appoint an external professional in this capacity.   There is no loss of control as can happen in a trust or other investment wrappers.  A company structure is simple to understand and relatively easy and cost-effective to operate.

The company will pay corporation tax on its income and gains but the gains will benefit from indexation allowance relief.  If fees are paid for investment management or advisory services these will be tax-deductible.  Where the shareholder funded the company and owns all the shares it could be difficult for HMRC to argue the “settlement” provisions apply in case that is perceived as a risk.  With suitable structuring it will be possible to pass on the shares of the company to family members tax-efficiently.

For more details regarding setting up personal investment companies please contact RKG Consulting.