What Is a Personal Investment Company?
A Personal Investment Company (PIC) is a limited company set up and owned by an individual or family primarily to hold and manage investments rather than operate a traditional trading business.
A PIC may hold a range of assets, including:
- UK and international shares
- Bonds and other fixed-income investments
- Commercial or residential property
- Shares in other businesses
- Cash deposits
- Intellectual property
Unlike a trading company, which earns income by selling goods or services, a PIC mainly focuses on managing and growing an investment portfolio. The person who establishes the company is usually its director and sole or majority shareholder.
Why Would Someone Use a Personal Investment Company?
The main reason for using a PIC is to manage investment income and gains within a company structure. Depending on the circumstances, this can provide a lower initial tax rate than holding certain investments personally.
For example, personal investment income may be subject to Income Tax or Dividend Tax at higher rates, while investment profits retained within a company are generally subject to Corporation Tax.
The potential advantage is greater when profits are left inside the company and reinvested rather than immediately withdrawn.
However, taking money out of the company can create an additional personal tax charge. Therefore, the overall benefit depends on the investment strategy, amount invested, time period, and how the money will eventually be extracted.
How Is Investment Income Taxed in a Personal Investment Company?
Investment income received by a PIC can be subject to Corporation Tax, depending on the type of income.
Rental income, interest and certain other investment income may be taxable within the company.
UK dividends received from many UK companies can benefit from the exempt distribution rules, meaning they are generally not subject to Corporation Tax.
The exact treatment depends on the type of investment and the circumstances of the company.
How Are Capital Gains Taxed in a Personal Investment Company?
When a company sells an investment for more than its allowable cost, the resulting gain is generally included when calculating the company’s taxable profits for Corporation Tax purposes.
A company does not have the same annual Capital Gains Tax exemption available to individuals.
This means that investment gains within a PIC can be subject to Corporation Tax rather than being taxed under the individual Capital Gains Tax system.
What Is Indexation Allowance for a Personal Investment Company?
Companies can potentially benefit from Indexation Allowance when calculating gains on certain assets acquired before December 2017.
The allowance adjusts the cost of qualifying assets for inflation up to the relevant date, which can reduce the taxable gain.
Individuals generally no longer receive this allowance for capital gains, making it a potentially useful consideration for companies holding older investments.
How Do You Take Money Out of a Personal Investment Company?
The tax benefit of keeping investments inside a PIC depends heavily on whether profits are retained and reinvested.
When money is extracted by the shareholder-director, different tax rules can apply.
Common methods include:
- Salary: Usually subject to PAYE Income Tax and National Insurance.
- Dividends: May be subject to Dividend Tax after the applicable Dividend Allowance.
- Director’s loans: A company may lend money to a director, but specific tax rules can apply to outstanding loans.
This creates an important trade-off. Keeping profits within the company can allow more money to remain invested, while extracting those profits may create additional personal tax liabilities.
What Does HMRC Say About Personal Investment Companies?
Personal Investment Companies are legitimate corporate structures. However, normal anti-avoidance and tax legislation can still apply.
HMRC may examine arrangements involving:
- Income being diverted between family members
- Share ownership designed to shift income between taxpayers
- Artificial arrangements created primarily to obtain a tax advantage
- Transactions affected by anti-avoidance legislation
A company structure should therefore have a genuine commercial purpose and be operated correctly.
Is a Personal Investment Company Right for You?
A PIC may be worth considering if you:
- Have substantial surplus cash or assets available for investment
- Expect to retain profits within the company for a long period
- Want to reinvest investment income and gains
- Have proceeds from a business sale or other significant capital
- Are considering long-term wealth planning
- Do not need to withdraw most of the investment funds immediately
A PIC may be less attractive if you:
- Need regular access to the investment funds
- Have a relatively small investment portfolio
- Would incur significant administration and accounting costs
- Are considering putting your main home into the company
- Are already a basic-rate taxpayer and would gain relatively little from the company structure
The tax saving should always be compared with the cost and administrative responsibilities of operating a limited company.
What Does It Cost to Run a Personal Investment Company?
A PIC has ongoing administrative and professional costs.
Potential costs include:
- Company formation
- Annual accounts preparation
- Corporation Tax return preparation
- Accounting software
- Payroll if a director receives a salary
- Companies House filing requirements
- Professional tax and investment advice
For a straightforward company, annual costs can vary significantly depending on the complexity of the investments and the level of professional support required.
The important calculation is whether the potential tax benefit is greater than the ongoing costs of running the company.
Personal Investment Company vs Family Investment Company
A Personal Investment Company and Family Investment Company (FIC) are closely related structures, but they are not necessarily identical.
A PIC may be owned primarily by one individual, while an FIC is generally structured around several family members.
An FIC may use different classes of shares to provide flexibility over ownership and dividend rights. It can also be used as part of longer-term family wealth and succession planning.
Can a Personal Investment Company Own Your Home?
A company can technically purchase residential property, but using a PIC to hold your main home is generally unlikely to be attractive.
One important consideration is that companies do not benefit from the same Principal Private Residence relief available to individuals for qualifying main residences.
Other costs and tax considerations, including Stamp Duty Land Tax, may also apply when a company purchases residential property.
Does a Personal Investment Company Have to Follow Making Tax Digital?
The Making Tax Digital rules depend on the company’s circumstances and the type of tax involved.
For example, a PIC that is VAT-registered may have Making Tax Digital obligations for VAT.
Making Tax Digital for Income Tax applies to individuals rather than companies, so the rules should not be confused with the Corporation Tax requirements that apply to a limited company.
Frequently Asked Questions About Personal Investment Companies
Is a Personal Investment Company the Same as a Family Investment Company?
No. They can be structured similarly, but a PIC is commonly owned by one individual, while a Family Investment Company is generally designed around family ownership and longer-term wealth planning.
Can a Personal Investment Company Own My Home?
Technically, yes. However, using a company to own a main residence can have significant tax and cost implications, including the potential loss of Principal Private Residence relief.
Is a Personal Investment Company Tax-Efficient?
It can be, particularly when investment profits are retained and reinvested within the company. However, extracting those profits can create additional personal tax charges, so the overall tax position needs to be considered.
Can a Personal Investment Company Invest in Shares?
Yes. A PIC can hold investments such as UK and overseas shares, subject to the company’s investment strategy and applicable tax and accounting rules.
Does a Personal Investment Company Pay Corporation Tax?
Yes. A company can be liable to Corporation Tax on taxable investment income and gains, although certain types of income, such as qualifying UK dividends, may receive specific exemptions.