Leaving the money in Company or take it out?

[singhr]

Last year I chose to leave a chunk of profits in company rather than take dividend as I didn't think I would be working as much for the year just gone but still wanted to draw salary etc. In the end I worked the full year and racked up more profit. Now this year end is coming around and with only 3 months work ahead am heading for the same dilema, should I leave it in or take it out. I am sure this has been covered before on CUK so if anyone could send me a link I'd appreciate it.

[Moscow Mule]

My advice on this matter depends on the answer to this question - Do you need it?

If yes, take it out. If no, leave it in there.

[northernladuk]

Would it not be better invested elsewhere?

Work out the cost/gain to remove it and save v cost/gain to leave it and get it out at company closure v cost/gain to take it out and buy gold/house etc with it or something.

Do whatever makes you most money. Guess would depend on how much you have as well

[Nixon Williams]

This was a topic I covered in our recent newsletter:

Looking Forward

The new-year is likely to bring new challenges when trying to maximise your net income. We already know that 2010 will herald the new top rate of income tax at 50%, although this will only hit incomes in excess of £150,000.

Lower incomes will be hit by the gradual withdrawal of the Personal Allowance starting when income hits £100,000 and fully withdrawn when it reaches £112,950.

With taxes likely to rise after the general election, the current tax year may prove to be the time to withdraw as much income as you can.

Whilst it is impossible to state categorically that this will save money, the writing on the wall indicates that savings could be made. Some of the warning signs are:

1. Could we see an extra tax on dividends for 2010/11? This could be an “easy” tax to increase.
2. The difference of tax rates between capital gains tax at 18% and higher rate tax at 50% could be closed?
3. Making use of Entrepreneur’s Relief, an effective rate of 10% could be stopped?
4. Capital Gains annual exempt allowance of £10,100 (2009/10) could be cut or even scrapped?

Unfortunately, nothing is certain and a fast changing tax regime makes even medium term tax planning very difficult. Now could be a good time to review your medium term tax plans, be careful of expecting the current tax rates and schemes to be there when you plan on using them!

This is only my opinion! We may have some more clues after the Pre-Budget Report on 9th December.

Alan