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Extracting profit from your company

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You are running a successful business. Typically, you are drawing a modest salary and topping up your income by taking dividends. You may well be restricting your income in order to avoid higher rate liability. Additional funds are likely to be extracted from the company by way of contributions to a pension scheme. Nevertheless, after setting aside a reasonable reserve, the company is still in a position to pay you more.

It is a common conundrum. You could simply increase the dividend and pay the higher rate tax. Or, you could reduce your tax liability and set up a tax free income for the future.

Investment into a Venture Capital Trust, or alternatively an Enterprise Investment Scheme, attracts income tax relief at 30% of the sum invested. This relief more than offsets the personal tax payable on the additional dividend income.

Why not speak to us about how you could increase your income and make some tax savings?  Call us at: SWLaw Investment  & Financial Planning Ltd  01752 205205

The minimum investment period is 5 years for VCT and 3 years for EIS.

Summary of tax reliefs :

VCT

Tax relief of 30% on initial investment (up to £200,000 pa)
Tax free dividends
Tax free gains

EIS

Tax relief of 30% on initial investment (up to £1M)
No tax on gains
Deferral of a Capital Gains Tax liability where gain is reinvested in EIS
Reduce Inheritance Tax exposure – qualifies for Business Property Relief after 2 years

 

References

The AIC Guide to Venture Capital Trusts

HMRC Overview of VCT scheme

The Enterprise Investment Scheme Association

HMRC Overview of reliefs on EIS investment

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