Getting the company structure right to ensure wealth passes onto future generations

One of our clients has recently come to the UK from India and he’s working in the IT sector as an employee. During his time in India, the client and his wife have built a sizeable pot of wealth through financial trading and the couple wanted to find a way of structuring their financial trading here in the UK in a manner which was both tax efficient and allowed the value to be passed onto their minor children in due course.

About the company

Our client is an employee and he’s a higher rate earner – this means he’s already paying income tax and any other further sources of income would automatically be taxed at high tax rates. He’s built up a sizeable pot through financial trading and he continues to carry out a high volume of transactions. He expects to generate an income from the financial trading, but he doesn’t need this income to fund his day to day to day requirements

The Problem

The client wanted to ensure that he was structuring his affairs in the most tax efficient manner and also wanted to find a way of passing the growth in the fund across to his young children.

The Solution

We have incorporated a limited company for the financial trading and the activity will be ring fenced in this company. This means that any profit that the company makes will be taxed in the company without having any impact on the individual’s personal tax liabilities. Our client didn’t want to draw anything from the company, and this is why there isn’t any impact on his personal tax bill. Both the client and his wife have shares in the company and the two children will own their own class of shares in the company. The children’s shares will not have voting rights or rights to dividends, but they will have rights to capital. This means that the children don’t have entitlement to dividends at the moment, but as any dividends that they received would be taxable on their parents, this wasn’t considered an issue.

The Results

The profits from the financial trading will be taxed at the corporation tax rates, and based on the expected levels of profits, this tax rate will be lower than the rates that our client would have needed to pay, if he had been doing the financial trading in his own name.

If your company is looking to achieve the same results as this client or have another trader related problem you need help solving, contact us on 01474 853 856 or email enquiries@accountantsfortraders.co.uk.