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Corporate Investment Advice

Why do companies invest?

  • Corporate accounts typically pay lower rates than for private money

Corp accounts

  • Companies often have funds in excess of cash flow needs
  • But are unwilling to tie money up in illiquid assets such as property

OEICs and Unit Trusts

  • For companies buying shares or investing in predominantly share-based investments like unit trusts, the 10% tax credit is deemed to meet the company’s Corporation Tax (CT) liability (whatever rate the company pays).
  • On disposal capital gains would be taxable but after allowance for indexation.
  • However, equity based investments likely to be volatile and might not sit well with the corporate attitude to risk

International Bonds

The Finance Act 2008 removed the availability of 5% tax deferred withdrawals for ALL companies. It also introduced the concept of the company being taxed on an arising basis on the growth in value in the bond each year. However, this basis only applies to larger companies taxed on a ‘fair value’ basis.

  • International bonds continue to be attractive for smaller companies as the ability to roll-up gains with tax deferred can be desirable – especially if your company profits fluctuate from year to year and losses are occasionally suffered.
  • The bond is shown in the Balance Sheet at the end of the company’s accounting period at the original premium amount regardless of the actual surrender value.
  • No annual gain (or loss) is recognised in the company accounts meaning that no corporation tax consequences arise. The company defers tax on growth until there is a disposal event such as full or partial surrender.

Onshore Bonds

  • Despite the fact that the internal tax paid within the bond is likely to be lower than 20%, it is deemed to meet entirely your company’s Corporation Tax liability.
  • A company year in which a loss is suffered may provide an opportunity to sell some or all of the international bond without giving rise to a CT liability.
  • If the profit stream is relatively stable, any offshore bond gain on sale will give rise to CT, and no allowances will have been made for indexation or fund expenses. In these circumstances, company use of onshore bonds may prove appropriate.

Contact us and we can discuss the best way for your company to improve the return on its surplus capital.

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