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By making
an investment of £260,000 into one arrangement, the taxable
profits were reduced to less than £300,000. This saved £360,000
in Corporation Tax, with the potential for a return on the investment
over the coming 4 years. This "investment" return would
cover most of the set up and running costs of the new business
venture. Hence the MD was happy to explore methods for extracting
funds from the business.
£92,000 in "net
current year savings" +
£101,000 potential future net profits from investment.
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SDLT of 4%
would have fallen due on the purchase - which would have cost
the company £140,000. By carrying out some very simple and
robust planning, this figure were reduced to £52,500.
As an added bonus, we were invited to speak to the sellers of
the unit, and discovered that they would have been paying CGT
on a gain of about £1.9m - which of course we were able
to reduce by £228,000 AFTER costs.
The end result was that the seller agreed to reduce the price
by £100,000.
£87,500 immediate
SDLT saving +
£100,000 saving on purchase price.
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In order to reduce the personal
tax exposure for the MD, and allow him to buy into this new business,
we took some of the company profits and moved them into an HMRC
Approved "fund". This was non-contentious and allowed
the MD to rethink the idea of taking a large bonus (on which 40%
tax would be paid... plus National Insurance).
So far the company had "saved" nearly £300,000
- with investment profits also possible over the coming 4 years.
As far as this Company were concerned - everything was now "free".
A figure of £450,000 were taken from current year profits.
The Trustees used
a special loan arrangement at 0.75%p.a to pass funds to the Director
without any benefit-in-kind tax charge or even Trustee taxation.
The loan amount was £360,000.
The MD had to pay interest at 0.75% on this loan - a total of
£2,700p.a
COMPANY CAR:
£47,000 of the loan was used to buy a nearly new car for
the Director. He no longer had a company car, and therefore saved
£6,202 in personal tax. He claimed the tax-free mileage
allowance of 40p per mile for the first 10,000 + 25p for the remaining
15,000 of his business travel - a total of £7,750 was therefore
paid out to him tax-free. This met ALL the interest payments on
the full £360,000 loan.
£6,202
company car tax saved.
PERSONAL TAX PLANNING:
As a high earner, the MD was introduced to some personal tax
planning. This allowed him to reclaim some high rate tax, as well
as reduce his current year exposure to only BASIC rate tax.
In all he "sheltered" £400,000 of income - This
cost him a total of £112,500 but saved him £160,000
of income tax. Plus locked him into potential future income (after
tax) of another £88,000.
£48,000
income tax saved +
£88,000 potential additional net income (in yrs 2+3).
PERSONAL MORTGAGE:
With the remaining
loan funds, the MD reduced his personal mortgage by £250,000
- which saved him interest as the bank were charging him a rate
of 6.1%. As an added bonus, the loan he took out was "interest
only" and therefore he did not have to earn the monthly cost
of "repaying capital".
£13,375
of interest saved +
No longer having to make capital repayments from "taxed"
money.
NEW BUSINESS:
Rather than start a new Ltd Company himself, the MD elected for
the Trustees to start the business. This had the advantage of
reducing the corporation tax on the NEW company - because the
two Ltd Companies were no longer classed as "connected"
as far as the lower rate of corporation tax were concerned.
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Immediate savings were made by
both the MD and the Company - with more saving due by taking lower
salary/bonus levels in the future. The savings are actually much
more than shown, but as a summary, this covers most things except
National Insurance.
MANAGING DIRECTOR:
£67,577 saved + £88,000 potential net income due in
the future..
COMPANY:
£279,500 saved + £101,000
potential net profits due in the future.
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