I am considering setting up a limited liability company to manage some investments on my wife and my behalf. The company would be run along the lines below. The purpose of the company would be to provide future retirement income. I would welcome comments on any aspect of this, but please don’t tell me about ISAs and pensions as I am already investing in these.
My limited liability company would
- Be incorporated with £100 of capital
- Receive a Director’s loan from me/my wife of about £100,000 – possibly more
- Invest primarily in UK shares of high dividend paying companies and investment trusts
- Hold investments for the long term, i.e. at least 5 years.
- We would not draw any income from the company under PAYE, unless there was a good reason to do so.
- We would not draw any dividends from the company in the early years. The aim would be to eventually draw dividends as part of retirement income.
- I would probably seek to withdraw all of my Director’s loan prior to withdrawing dividends
I understand from what I have read that the company would be classified by HMRC as a close investment holding company. My understanding of the tax implications of this are that
- The company would pay standard rate corporation tax on profits, i.e. would not pay the smaller companies rate
- Disposal of shares would be subject to corporation tax instead of capital gains tax, but taper relief would be available
- Dividends from investments would not be subject to corporation tax
- Apart from the £100 share capital and Director’s Loan, all of the built up funds would be classified as distributable reserves and so could be paid out as dividends.
What I am not clear about are the following:
- Is there anything in the above that HMRC would take a dim view of and rule I was in breach of some obscure bit of tax legislation?
- I am in the fortunate position of having a flexible mortgage that is fixed at 0.5% above Bank Of England base rate – i.e. currently 1%. If I used this facility to make an additional loan into the investment company, would I be entitled to income tax relief on this? E.g. if I borrowed £100,000 at 1%, could I claim £1,000 income tax relief? If so, how would I go about providing the evidence of this to HMRC? Would I instead have to take out a second mortgage specifically to make the loan?