Profiting from corporate funds
Many owner-managed companies will generate cash surpluses through successful trading and unspent or un-invested profits.
Such funds will often be left on deposit in much the same way as the owner’s personal surplus funds, presenting a source of comfort for the business owners to aid business cash flow and avoid the need for borrowing.
It will not always be the case that leaving funds on deposit is in the interests of a business - either commercially or on tax grounds.
Depending on the company’s accounting principles and the structure of the investment, opportunities to defer or mitigate tax do exist.
But this should be given serious consideration.
- Retaining surplus cash on deposit provides neither a good return nor the ability to defer tax.
- Investments held by a company will, for the most part, be taxed in an entirely different way than the same investments held by an individual. This is because they are covered by the ‘loan relationship rules’.
With current rates of Corporation Tax decreasing in the years ahead, the ability to defer the tax point of an investment held by the company can be a significant advantage and can increase net returns.
- Entrepreneurs’ Relief applying to the first £10 million of capital gains arising on the disposal of business assets, at a rate of 10%, can be an exceptionally valuable relief. Understanding the relationship between ‘trading activities’ and ‘investment activities’ given the value of Entrepreneurs’ Relief is essential.
Business Property Relief (BPR) provides a 100% Inheritance Tax exemption
- Most businesses should qualify for it, but not all property will. So it is important that business owners understand the rules for BPR qualification.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.