What are capital taxes for limited companies or businesses ?
There are two types of income:
earned income and capital.
With a limited company, they are effectively taxed and assessed on both at the corporation tax rate, which is currently 19%.
Tax, however, for individuals the tax treatment of capital gains is very different.
So if our limited company makes a gain on the sale of shares, that’s a capital item.
If it’s not trading in shares and it buys a bulk of shares and holds them for a period of time, say, a year or two and it’s not trading in any other shares then that is classed as a capital item and its assessed at the corporation tax rate of 90%.
There are other capital items as well, such as properties and investing in other businesses.
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Capital Planning Example
If you have a limited company that has bought property or shares and holds the property or shares in its balance sheet, all the assets, including the property and shares are owned by the limited company.
If someone trips over an electrical cable in the office and sues the company and the company doesn’t have enough money to pay the damages awarded, the potential is that the property and the value of the shares and all other company assets are at risk from the individual winning a suit against the company.
So you might take the view, it’s easier and safer to de-risk that investment of shares and property into personal names, or into another company name that is not trading.
The trading entity then pays rent to the individual or other company owning the assets.
And therefore, the risk of someone being able to access the value in that property and shares through a suit of the trading company is much reduced.
So that’s potentially not tax planning, but an example of where it is not just about saving tax is also about positioning to de-risk the owners value.