Dumb question about tax on "savings"

[King Cnvt]

Okay, this is probably a dumb ass question but here goes.

Say I have a lot of money (lets say £50K) that I want to get a high rate of interest. Ignoring ISA allowance and some NS&I bonds, all high interest savings will be clobbered by 40% tax.

If instead I setup a ltd company and issue shares (50K at £1 per share) I can deposit the money as capital into the ltd.

The limited then uses something like Zopa to get returns of about 7%

This interest is deemed as profit (???) so is subject to corp tax. Then later I withdraw the profit from the ltd as a Dividend, or if the ltd has been around for a good few years, close it and get taper relief.

Good idea or pants?

[tino]

Say I have a lot of money (lets say £50K) that I want to get a high rate of interest. Ignoring ISA allowance and some NS&I bonds, all high interest savings will be clobbered by 40% tax.

Is this correct surely most ways of getting 50k would have been taxable at some point (unless you had a gambling win) so surely you wouldn't be taxed a second time ???

[Bluebird]

Not sure what you are trying to do, after corp tax you then pay a divvy - which is subject to personal tax rules the same as if you'd had it straight from an ISA or whatever ?

Are you thinking that by paying CT you don't have to pay personal tax on the divvy ?

[King Cnvt]

I believe you only pay additional tax on a divvy if you are a higher rate tax payer. So if the shares in the ltd are held by a lower rate tax payer there is no further tax to pay on the divvy. So the only tax is the corp tax.

Now yes the money will have been taxed at extraction (from say a divvie from a contracting ltd), but that doesn't stop the government from then taxing the money again in a savings account.

So the tax saving relies on the fact that corp tax rates are lower than personal tax rates.

Does this make any sense?

[cailin dana]

They don't tax the money do they?? They tax the interest - seems like you are creating a lot of hard work for not much gain....

[pickle]

[QUOTE=King Cnvt]I believe you only pay additional tax on a divvy if you are a higher rate tax payer. [QUOTE]

If you are not a higher rate taxpayer, then you wont pay 40% on your personel bank account intrest either.

[thunderlizard]

If you did that, the company you set up would be an investment company and not a trading company. Investment companies have different tax rules (but I don't know what they are).

[Ardesco]

To make it short and simple.

It's dumb, don't do it

HTH

[King Cnvt]

To make it short and simple.

It's dumb, don't do it

HTH

Thanks. Clear concise advice.

[tim123]

I believe you only pay additional tax on a divvy if you are a higher rate tax payer.

But the starting condition in the question is that you are a HR tax payer ("you will be clobbered with 40% tax").

tim