Investing company profits in offshore funds

[monkeybrain]

I have just had a meeting with my local HSBC business advisors. Apart from the usual schpiel about pensions and life insurance they suggested that i should consider investing in one of their offshore funds. They claimed:

• that this would also excempt the invested money from corporation tax
• i would only pay tax when the money is brought back on-shore.
• so long as i timed this correctly that i could bring the money back at a time when my company was showing a loss (e.g. if i had a year off work) and offset this money against the loss.

It sounded great, but now i think about it i am skeptical. From what ive read on other threads
(a) There is a limit to the amount u can invest before being deemed an investment company and incurring higher rate corporation tax
(b) Investing the money overseas does not mean the money has left the ltd company and therefore it would still be eligible for corp tax

Can anyone tell me if HSBC are correct and I would be safe to invest offshore and cut my corp tax bill?

[minstrel]

I'm skeptical too.

I think you are right about the risk of being deemed an investment company.

Also, I don't see how it would cut your corporation tax.

Imagine you had £10k in spare funds to invest in the offshore fund. If you invested this in the fund and were allowed to offset against company profits you would be saving 20% CT (£2k).

5 years later your £10k has grown to £20k, you decide to take a year off and bring back the money on shore. You now have a profit of £20k and will have to pay 22% CT (£4.4k - CT will have rised to 22% by then). All you are doing is deferring the tax liability.

True, you could probably offset this against any losses, but if you are just operating as a contractor through a limited company, I think it would be difficult to get your company to show a big loss. You could pay yourself salary to show a loss, but the tax and NI contributions would more than likely wipe out any savings.

Also bear in mind the captial gain (£10k) on your investment is subject to tax via the company. If you had made the contribution personally you have a £9,400 per year capital gains allowance which means you would not have to pay tax on the gain.

Other options are to invest the £10k in a pension via an employer contribution which would avoid the CT. You could also distribute the cash as a dividend and then invest in a ISA where you avoid CGT completely.

I don't think anything HSBC has said is wrong. However, the only way it would save you money is if you could get your company into a situation where it showed big losses, which I think would be hard.

Why not ask the business advisor to give you a worked example using your situation and ask them to show how it would save you money? I bet they can't do it.

[bored]

[*]that this would also excempt the invested money from corporation tax

I am not an expert but I guess that means that the company you are investing in does not pay corporation tax. Your co still has to pay it on all profits.

[monkeybrain]

Thanks for the replies guys. Minstrel you raised some very good points - but assuming that I could find a way to operate at a big loss for one year does this mechanism actually work? i.e. am i actually allowed to offset investments offshore against corporation tax?

[minstrel]

am i actually allowed to offset investments offshore against corporation tax?

Don't know, sorry. I wouldn't have thought you would be able to.

Probably best to speak to your accountant.

[rawly]

Interesting. CP called me this morning to ask if I would be interested in having a chat with someone regarding off-shoring, which had approval from the FSA. I declined in this instance! Must be something being pushed at the moment if the big agencies are getting involved?

[swhelan7]

Offshore investments

If you take a year or two off but still want to pay yourself a salary then you can liberate funds from offshore to pay this salary and effectivly avoid paying CT on that amount.

I've often wondered if this is a good way to provide a steady income after stopping work. Say invest 300k offshore and use some of the profits to pay a wage. At least this way your not forced to buy an anuity and have nothing to pass on in inheritence.

Would it then be possible to pass the company on to your kids and keep the investments going?