A Personal Investment Company (PIC) is a privately-owned company set up to hold and manage personal investments such as shares, property, or other assets. Typically, the owners are individuals or families who want more control over their investments and wealth. PICs are often used as an efficient way to manage taxes, protect assets, and plan for long-term wealth preservation.

This guide will explore the benefits of establishing a Personal Investment Company, its tax implications, and why you might consider setting one up with the help of professionals like CANGAF Accountants.

What Is a Personal Investment Company?

A Personal Investment Company is essentially a limited company where the main purpose is to hold and manage investments, whether they be in stocks, bonds, real estate, or other assets. It’s typically owned by individuals who act as shareholders and directors, allowing them to have greater control over their financial portfolio.

One of the key advantages of a PIC is the ability to benefit from the UK’s corporation tax rates, which are usually lower than individual income tax rates. This structure can also offer flexibility in terms of tax-efficient planning and succession planning for family wealth.

Benefits of a Personal Investment Company

1. Tax Efficiency One of the primary reasons people establish PICs is the potential for tax savings. A PIC pays corporation tax on its profits, which can be lower than the personal income tax rates that individuals would pay on dividends or capital gains. Currently, the UK corporation tax rate is 25%, compared to higher personal income tax rates that can reach up to 45%.
2. Flexibility in Income Distribution Through a PIC, owners have flexibility in how they distribute income. Instead of taking all the profits as dividends, owners can decide to retain some profits within the company, which could defer personal tax liabilities. This allows for tax-efficient planning, especially if profits are intended for reinvestment rather than immediate use.
3. Inheritance Tax (IHT) Planning PICs can be used for long-term inheritance tax planning. Shares in a PIC can be passed down to future generations, allowing for efficient wealth transfer without triggering an immediate inheritance tax liability. A well-structured PIC can help reduce or manage IHT liabilities over time.
4. Control and Asset Protection By holding investments through a PIC, individuals maintain full control over how their assets are managed and distributed. Additionally, as a limited company, the PIC can offer protection from creditors, ensuring personal assets remain separate from business liabilities.
5. Profit Retention and Reinvestment Unlike individual investments, where you would typically withdraw profits and potentially face personal income taxes, a PIC allows you to retain and reinvest profits within the company. This reinvestment strategy can help the company grow its assets without incurring significant tax liabilities, making it a useful tool for long-term wealth accumulation.

Tax Implications of a Personal Investment Company

While the benefits of a PIC are substantial, it’s essential to understand the tax implications. These vary based on how the company is structured, the types of investments held, and the income distribution method.

• Steering You Towards Your Financial Objectives
• Do You Need an Accountant for a Limited Company
• What Does an Accountant Do For a Small Business? 
• Submitting a Self-Assessment Tax Return for Someone Who Has Died
• PPR Tax Relief: Understanding the Tax Code

1. Corporation Tax As a company, a PIC pays corporation tax on its profits. This is typically lower than the top rate of personal income tax, allowing for tax-efficient growth. Profits retained within the company can be reinvested, delaying any tax on dividends until they are withdrawn by shareholders.
2. Dividend Tax When you withdraw profits from the PIC as dividends, these are subject to dividend tax rates. For the 2023/24 tax year, dividend tax rates are:
   • 8.75% for basic-rate taxpayers
   • 33.75% for higher-rate taxpayers
   • 39.35% for additional-rate taxpayers
   However, the dividend allowance is £1,000, so the first £1,000 of dividends are tax-free.
3. Capital Gains Tax (CGT) Investments held within a PIC that are sold at a profit are subject to corporation tax on chargeable gains rather than Capital Gains Tax (CGT). This can be beneficial as corporation tax rates may be lower than personal CGT rates. The current CGT rates for individuals are 10% for basic-rate taxpayers and 20% for higher-rate taxpayers, with an additional 8% for residential property.
4. Inheritance Tax Shares in a PIC can be passed down as part of inheritance tax planning. While the transfer of shares may not immediately trigger Inheritance Tax (IHT), it’s important to note that the value of the shares may still form part of the taxable estate unless other planning mechanisms are in place.
5. Interest and Loan Payments If the PIC takes out loans for investment purposes, it may be able to deduct interest payments from its taxable profits. This can reduce the overall corporation tax liability.
6. VAT While VAT typically applies to businesses that supply goods or services, it generally does not apply to investment companies unless they are actively trading. However, VAT on expenses incurred by the company can often be recovered.

Is a Personal Investment Company Right for You?

Setting up a PIC may not be the right solution for everyone. Here are some factors to consider before deciding:

• Investment Size: PICs tend to be most beneficial for individuals with significant assets or investments. If you’re managing a relatively small portfolio, the costs of setting up and running a PIC might outweigh the benefits.
• Long-Term Planning: A PIC can be a useful tool for long-term wealth preservation and tax efficiency. However, if your investment horizon is short-term, the administrative burden may not be worth the savings.
• Professional Guidance: PICs require careful tax planning and regular management. It’s essential to seek professional advice to ensure you’re complying with HMRC regulations and optimizing tax efficiencies.

At CANGAF Accountants, we can help assess whether a PIC is right for you and assist with every stage of its setup and management. Our team provides personalized advice tailored to your investment goals, ensuring that you maximize tax efficiency while staying compliant with the law.

How CANGAF Accountants Can Help

Establishing a Personal Investment Company can be a complex process, and it’s crucial to get expert advice to ensure you benefit from its tax advantages. CANGAF Accountants offers comprehensive services, including:

• Tax Planning: We’ll help you develop a tax-efficient strategy tailored to your personal and investment goals.
• PIC Setup: From company formation to HMRC registration, we handle all the administrative tasks to ensure your PIC is set up correctly.
• Ongoing Management: Our team will assist you with the annual filing requirements, tax calculations, and other compliance-related tasks to keep your PIC in good standing with HMRC.

Contact Us

Ready to explore the benefits of a Personal Investment Company? Contact CANGAF Accountants for expert guidance.

CANGAF Accountants
235 Tonge Moor Road, Bolton BL2 2HR
Email: info@cangafltd.com
Phone: 01204 859315

Let CANGAF Accountants help you navigate the complexities of personal investments and tax planning, so you can focus on growing and preserving your wealth.