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Setting up a limited company for children

Setting up a limited company for my children to invest money for their future.

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I am looking to setup a limited company for my children were they would be shareholders and I would be a director. There would be no adult shareholders, just the children.

I would invest money regularly for them and that money would be placed in a peer to peer lending platform to generate interest on the money invested. Profits would be reinvested each year for the purpose of building up a large pot in the future where the children once adults, can use the dividends as income or cash out and use the lump sum.

Is this possible?

 

Replies (19)

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RLI
By lionofludesch
05th Jan 2020 11:11

"I would invest money regularly for them ...."

And this money represents what ?

A gift ? A loan ?

Gifts to companies will generally raise an eyebrow at HMRC. They could use up your IHT nil rate band; depends on how much you were thinking about.

A loan ? It's still your money. Though the interest on it probably isn't.

A trust might be better - but that will have its problems too.

Go and see an accountant and tell him your plan.

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By memyself-eye
05th Jan 2020 11:13

Possible, yes. Sensible, no.

Too many issues to list here.

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Replying to memyself-eye:
Psycho
By Wilson Philips
05th Jan 2020 11:34

Possible? Yes. Sensible? Maybe. Too many issues and too many unknowns.

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By penelope pitstop
05th Jan 2020 11:23

.

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By RDouglas74
05th Jan 2020 13:20

Basically it will be combination of their own money from family (pocket money etc) and also money from me as though I would put money into an ISA for them.

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Replying to RDouglas74:
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By WhichTyler
05th Jan 2020 14:14

Why not put money into an ISA for them?

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Replying to WhichTyler:
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By Accountant A
05th Jan 2020 14:29

WhichTyler wrote:

Why not put money into an ISA for them?

Because it sounds good to say you have a company and he is happy for his children to pay tax unnecessarily.

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Replying to Accountant A:
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By RDouglas74
05th Jan 2020 14:52

Accountant A wrote:

WhichTyler wrote:

Why not put money into an ISA for them?

Because it sounds good to say you have a company and he is happy for his children to pay tax unnecessarily.

No, it’s because ISAs have poor returns and I can generate better through investments. I’d rather pay 19% tax on a 10% return than zero tax on a 3% return.

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Replying to RDouglas74:
Psycho
By Wilson Philips
05th Jan 2020 15:14

That’s a sensible point. However, considering ISAs only and the maximum subscription, you might find that additional costs of running a company, tax on extraction of funds etc, might well exceed any such increase on return. These are just some of the variables which makes any definitive conclusion on a forum such as this well nigh impossible.

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Replying to RDouglas74:
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By WhichTyler
05th Jan 2020 15:21

Doesn't the return rather depend on what you invest in through the ISA? (and your attitude to risk)

Some of these have double digit growth for several years (these are just examples, I am not recommending HL or any of the funds, just pointing out that your hypothesis is not necessarily correct, and you can avoid the tax and compliance cost of a company)

https://www.hl.co.uk/investment-services/junior-isa/investment-ideas

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Replying to RDouglas74:
RLI
By lionofludesch
05th Jan 2020 15:49

Don't forget the 7½% your kids will need to pay on any dividends they draw.

I can see you're keen by the way you dismiss any objections folk offer so your best plan is to go ahead, I think. It's what you want.

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Replying to lionofludesch:
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By RDouglas74
05th Jan 2020 15:59

lionofludesch wrote:

Don't forget the 7½% your kids will need to pay on any dividends they draw.

I can see you're keen by the way you dismiss any objections folk offer so your best plan is to go ahead, I think. It's what you want.

My original question was asking if it can be done.

The 7.5% is paid on dividends taken. The plan is to not pay dividends for at least the first 15 years.

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Replying to RDouglas74:
RLI
By lionofludesch
05th Jan 2020 16:04

RDouglas74 wrote:

The 7.5% is paid on dividends taken. The plan is to not pay dividends for at least the first 15 years.

But dividends will be taken. One day.

Sorry for not seeing your reply as a solution.

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Replying to RDouglas74:
Hallerud at Easter
By DJKL
05th Jan 2020 16:29

But 10% is not guaranteed and you have all the hassles with peer to peer lending re NTLR loss reporting etc- I can tell you from my experience with some spare cash I had my company lend out via Funding Circle that there are no free lunches, whilst I did not lose my returns got heavily dented via two bad debts out of about 80 loans made.

I think family companies can have a place re planning but suspect I would prefer equity investments via say ITs where dividends received would likely not be taxable (though watch UTs) and gains/losses generally are not forced upon one via corporate events (though they still can be), but frankly unless you can do all accounts and tax on a DIY basis you need a pretty large critical mass to justify even trying feeding through a company- I suspect I would more likely just try to use ISAs and keep things simple.

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By Red Leader
05th Jan 2020 16:45

Didn't a question like this come up several months ago?

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By paul.benny
05th Jan 2020 17:39

If you want to gift money for your children's future, have you considered Lifetime ISA or pension?

Pension contributions up to £2,680 pa (ie £3,600 gross) get tax relief, whether or not tax has been paid. "Free" money more than mitigates "dull" returns. CAn't be bothered to look up the eligibility of minors.

Lifetime ISA. Ditto about government top-up.

moneysavingexpert.com has good information and explanations for both the above.

And some institutions give quite generous interest on (risk-free) savings accounts for children.

You may be very good at picking investments. Or you might not be. Most professionals don't *consistently* beat the markets, yet charge handsomely regardless of performance. Relatively small sums result in higher transaction costs and limited opportunities to diversify. Your children would be better off with their money in a tracker fund.

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By thestudyman
06th Jan 2020 07:03

Peer to peer is eeering on the high side of risk.

An idea could be to open up junior pensions each for your children and the investments can go towards index or tracker funds which are more broad and diverse than individual shares or loan lending.

In any case - please do consult an IFA ro work out the best scenario for your circumstances.

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Replying to thestudyman:
RLI
By lionofludesch
06th Jan 2020 09:05

There's a point. Does the OP need to be an investment adviser ?

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By Tax Dragon
06th Jan 2020 17:35

If you are set on peer to peer, there may be a much simpler way of achieving the outcome you want without the issues the others have referred to - and with much greater flexibility for the future than your outline plan might give.

So... take heed of the warnings, sure. But don't necessarily give up on the idea. Wait until January is over, and take it to an accountant.

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