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Where Taxpayers and Advisers Meet

Ltd Co with ex, stuck in Taiwan

Oldtramp
Posts:16
Joined:Sun Mar 26, 2017 7:20 pm
Ltd Co with ex, stuck in Taiwan

Postby Oldtramp » Sun Oct 29, 2017 1:55 pm

I am thinking to set up a UK Ltd company with my separated but reconciled wife, who is presently stuck (for complex family reasons) in Taiwan, where I am partly supporting her. She is Taiwanese citizen and not UK-resident. The company would sell my consulting/lecturing services and she’d do some back-office work. We’d be 50:50 shareholders and co-directors; profits would be paid out as equal dividends. I may spend some months per annum in Taiwan but would remain UK resident for tax purposes; the company would conduct no business in Taiwan.

If legitimate, this should be tax-efficient. My ‘ex’ would get dividends from the company, with, I believe, only Taiwan tax to pay, not UK. Simultaneously, I’d pull my own total income below the £100000 tax trap. The alternative –me continuing to consult as a sole trader, paying high marginal income tax rates plus NI, then remitting funds to Taiwan works out far worse.

But, is there a legal/tax pitfall that I'm missing?

GlobalTaxAdviser
Posts:633
Joined:Fri Dec 05, 2014 1:18 am

Re: Ltd Co with ex, stuck in Taiwan

Postby GlobalTaxAdviser » Mon Oct 30, 2017 1:16 am

Hi

Yes would you described would be fine, However the tax savings between limited company v sole trader may not be as large as you think if are taking money out of the company.

The Limited company would have advantage that you can keep funds in the company and not pay dividend tax until the dividends are formally declared

Kind Regards

GTA

Oldtramp
Posts:16
Joined:Sun Mar 26, 2017 7:20 pm

Re: Ltd Co with ex, stuck in Taiwan

Postby Oldtramp » Sun Nov 19, 2017 9:01 pm

Thanks GTA; sorry for the slow 'thank you' and response.

I think there's a significant gain from the Ltd Co because of the workings of the £100000 tax trap and NI

In round figures, before this consulting, I'll have pension £32000, one continuing salaried employment £18000 plus dividend and interest income of c. £40000. (There's also a SIPP, but suppose I delay drawing on this).

Now, suppose the consulting brings in £50000.

As a sole trader I'd have to pay 40% income tax on this = £20000. What's more, with total income of £140000 I'd completely lose my personal allowance, meaning another £11500 taxed at 40% = £4600. And then there's National Insurance, considering that I'd pay Class 1 on the £18000 salaried income, £25000 of the consulting would be liable to (I think) 7% Class 4 charge and the other £25000 at the 2% additional rate = £2250. So, total stoppages +£26850 and I'm left with £23150, shared with the wife in Taiwan.

With the Ltd the £50000 is subject to 20% corporation tax, leaving £40000, distributed as two £20000 dividends, one to the wife, stuck in Taiwan, and one to me. She pays 10% Taiwanese tax leaving her with £18000. My £20000 is subject to 32.5% dividend tax = £6500 and, since my total income is £110000, I lose £5000 of personal allowance, now taxed at the dividend rate of 32.5% (I think) = £1625. So, out of my £20000 dividend I'm left with £11875 and, between us, we've netted £29875 ------- £6725 better than if I remained as a sole trader.

Or is there a mistake in these estimates? (I know I've omitted the £2000 dividend allowance, but that affects both similarly and Class @ NI, which impacts the sole trader model slightly).

GlobalTaxAdviser
Posts:633
Joined:Fri Dec 05, 2014 1:18 am

Re: Ltd Co with ex, stuck in Taiwan

Postby GlobalTaxAdviser » Wed Nov 22, 2017 11:01 am

Hi

Thanks for the response

The Savings will be greater as the Corporation Tax is now 19% and will fall to 17% by 2020 and perhaps even lower.

Kind Regards

GTA


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