Dividends Distribution

[kimgas]

I am the director and my wife is the secretary of our own small ltd company, my wife also works foe another employer and has a £12k salary. I take a salary of around £5k from my company. This year I have produced about £40k profit an I want to distribute this to us . If my wife goes over into the 40% , she will have to pay higher tax. We would like to have this dividend payment to fund a new buy to let property investment. Would it be worth setting up a new ltd company to run the new investment scheme?Problem being , these properties are now owned by us personally and also mortgaged between us.Our ultimate aim is to have a investment/development portfolio, run through our own ltd company. Can I maybe use the dividends to fund our new scheme , but Not show them as dividends , but as a investment transaction/
Advice please.

[Huw Williams]

This is a complicated situation and I would recommend you talk it through with your accountant. Or get one if you do not have one yet. But I can make a few comments:

Is the £40k profit before or after corporation tax? If it is before tax do not forget to make a suitable allowance before dividending the profit out.

Who owns the shares (1)? - if they are all yours then you might have a 40% rate problem. If they are owned equally then a dividend of £20k to your wife should not put her into 40% unless there is some other income involved.

Who owns the shares (2)? - there is the potential risk of the Revenue wanting to reallocate income to the "real contributor" to the company business which has been in the press for the last year. Again this is an issue you need to talk to someone about once they have all the information to hand - not something that can be done in a forum like this.

Properties - I am a little confused. If you own the properties you do not need the money to buy them. Are you talking about money to buy an additional property? If so then the issue over existing properties is a different and difficult issue (difficult because house price increases mean they could well have capital gains on them).

Investment transaction - if your trading and property companies were a "group" then I cannot see a major issue in a loan between them. Even loans between companies which are not grouped are generally acceptable although there can be dangers within the close company and trust anti-avoidance rules.

The new transfer pricing rules would have to be watched if either company grows out of the "small company" bracket.

Again you need to go through the issues with someone who has knowledge of you affairs.

Huw Williams
217 Musters Road
West Bridgford
Nottingham
NG2 7DT

0115 914 6846

enquiries@huwwilliams.co.uk

[Ian McTernan CTA]

You may wish to consider taking a look at my book on using limited companies which can be found at :
www.taxationweb.co.uk/propertytax/ian

This will give you a good background knowledge of how companies work and how they could be applied in your circumstances.

Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
ian@imcternan.com