💡Can My Limited Company Purchase Investments?

Yes. A Limited Company is a separate legal entity, which means it is entitled to purchase investments, such as stocks and bonds, subject to the approval of Directors and Shareholders.

However, while investing through your company can offer certain advantages, it also comes with taxation complexities and potential pitfalls that must be carefully considered.

🧩 Scenarios & Taxation Pitfalls

1. Tax on Investment Income

• Income generated from company-held investments is taxed at 25% corporation tax.
• If profits remain in the company for more than 18 months, the tax rate increases to 40%.
• When profits are extracted personally, an additional tax of up to 52% may apply.

💡Example:

🧩 Why Do I Need Income Protection?

💡 Key Point: Leaving profits in the company for long periods or withdrawing them personally can significantly increase your overall tax bill.

2. Investment Costs Are Not Deductible

The cost of the investment itself cannot be written off against profits.
This means that funds used to purchase investments have already been taxed at the standard 12.5% corporation tax rate when they were earned by the company.

In some cases, an additional surcharge of approximately 7% may also apply.

💡Example:

⚠️ Note: You pay tax on the funds before investing and then again on any income the investment generates — effectively a double layer of taxation.

3. Capital Gains Tax (CGT)

If your company sells an investment for a profit, that gain is subject to Capital Gains Tax (CGT) within the company.
Additionally, if the company is liquidated, there may be a further CGT charge on the same money when distributed to shareholders.

🧾 Example:
Profit from sale → CGT in company → Funds distributed → CGT again on liquidation.

Advantages of Investing Through a Limited Company

Despite the potential tax pitfalls, there are still some key advantages:

Easier to Build Company Funds
It’s often simpler to accumulate investment capital within your company since corporation tax (12.5%) is lower than personal income tax (up to 52%).

Lower Tax on Investment Income
Investment income generated within the company is generally taxed at 25% to 40%, compared to up to 52% if earned personally.

✅ Benefit Duration

🛄 Multiple Claims

You can claim multiple times throughout the policy term, whenever you are unable to work and meet the claim criteria.

Summary

• ✅ Easier accumulation of investment funds
• ✅ Lower initial tax rates
• ⚠️ Potential double taxation
• ⚠️ Limited deductibility of costs
• ⚠️ Possible Capital Gains exposure

💬 Expert Advice:
Before proceeding, consider the short-term liquidity needs of your company and the long-term tax implications. Always consult a qualified tax advisor or financial planner to ensure your investment strategy aligns with your company’s financial goals.