If you are looking for a viable alternative to retain and grow your family wealth, a personal investment company (PIC) can be the best option for you. The main advantage of using a PIC is the opportunity to make long-term investments that enable you to receive higher post-tax profits that you can reinvest for rapid growth without paying high personal taxes.
So, there are a lot of benefits to using a PIC. Let’s see what a personal investment company is, how it can be used, and what the tax benefits of holding personal investments in a PIC are.
What is a Personal Investment Company (PIC)?
A PIC is a private company typically used as a long-term financial vehicle. Being a simple UK-resident company, there are many types of investments that are restricted to be held by a PIC. These include:
- cash deposits
- share portfolios
- investment funds
- rental properties
How a PIC can be Used?
Here is how you can use a private investment company or a personal investment company:
1) Business Planning
It can be a viable tool for business planning. And, saving money is an important principle of business planning. Most people struggle to withdraw money from a private trading company without paying a heavy tax on it. If the cash extracted is not needed to spend on personal expenses, then a private investment company can be a great way to do a long-term financial investment. So it can help both trading companies to carry out their trading activities and investment companies to fund retirement.
2) Retirement Planning
If the income earned from a capital sum is not required by a person, the individual can provide a loan to money box PIC to grow tax efficiently. Afterwards, if the cash is needed by the lender on an immediate basis, the repayment (full or part) can be made. However, PICs are generally intended to make investments for the long term for the income taken out through the dividends, for retirement, when the individual’s income is lower and when the personal tax rate is likely to be lower. The extra funds previously lent to the PIC can be extracted until exhausted.
3) Family Wealth
Holding shares in a PIC by the family members could be a viable option to provide access to the income from investments as well as to pass on wealth to the next generation.
4) University Costs
A PIC can be a great tool to fund university costs. University adults could be shareholders and get dividends from the PIC. And as per the level of their other incomes, they can benefit from dividends without paying tax on them.
5) Inheritance Tax Planning
A personal investment company allows investment growth that doesn’t count as an estate for the purpose of inheritance tax (if the donor is not a shareholder), as a result, you can save tax up to 40%. The original funds could then be paid back gradually in parts during retirement to fund the living costs.
What are the Tax Benefits?
There are a lot of tax benefits that make PIC an attractive option to invest:
- In a PIC, the dividend income is generally non-taxable
- Gains are generally taxed at 19% (considering the inflation)
- Income and gains earned from investment could be paid into a pension plan
- Loss incurred on rental income can be balanced against other incomes
- Portfolio and other management fees can be subtracted for the tax purposes
Quick Sum Up
So, a personal investment company can be a long-term investment vehicle and a great alternative to make tax-efficient investments to reinvest the money on other projects. Additionally, PIC allows you to grow and retain family wealth by protecting it from income and inheritance tax. Hope you have got a general understanding of the PIC.
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Disclaimer: This blog is intended for general information only.