Companies, holding companies, trusts and property

Best for

Profits above roughly 50,000 that you do not need to draw in full

What it saves

Typically 5% to 9% of profit once you mix a small salary with dividends and company pension contributions

What it costs

Accountancy 900 to 2,000 a year, plus company filings and a separate bank account

Break even

Usually worth it above about 50,000 of profit, rarely worth it below 30,000

How it is set up

1. Have an accountant compare sole trader and company tax on your real profit.
2. Incorporate at Companies House and register for corporation tax.
3. Set a deliberate salary and dividend policy, and pay pension from the company.

Watch out: Money in the company is not your money. Taking it out badly (overdrawn director's loan) creates its own tax charge.

Best for

Owners who want to build up cash or property outside the trading risk

What it saves

Dividends between UK companies are normally tax free, so profits move up without a personal tax charge

What it costs

A second set of accounts and filings, and more care over group paperwork

Break even

Worth considering once the trading company retains six figures or you plan to sell

How it is set up

1. Get advice on the share exchange and clearance from HMRC where needed.
2. Move retained profit up to the holding company by dividend.
3. Keep the trading company clean of investment assets so business reliefs are not lost.

Watch out: Holding investments in a trading group can put Business Asset Disposal Relief and inheritance tax business relief at risk.

Best for

Passing on wealth while keeping control over when children receive it

What it saves

Assets can leave your estate after seven years, and growth happens outside it

What it costs

Setup 1,500 to 5,000, plus trustee admin and its own tax returns

Break even

Rarely worth the cost below about 250,000 of assets

How it is set up

1. Decide what the trust is really for: control, protection, or tax.
2. Have a solicitor draft it and appoint trustees you trust.
3. Watch the 20% entry charge above the nil-rate band, and the ten year charge.

Watch out: Trusts pay tax at high rates on income they keep, and there are entry, exit and ten yearly charges. This needs professional advice.

Best for

Higher rate landlords building a portfolio they will not sell soon

What it saves

Full mortgage interest deduction instead of the restricted 20% credit

What it costs

Stamp duty and capital gains tax on moving existing property in, higher mortgage rates

Break even

Usually only worth it for new purchases, or portfolios of three or more properties

How it is set up

1. Model the tax on transferring existing property before you move anything.
2. Buy new properties through the company rather than transferring old ones.
3. Plan how you will take money back out, because that is taxed again.

Watch out: Moving your own properties into a company is a sale for tax purposes. The stamp duty and capital gains bill often wipes out the saving.

Best for

Owner-managers selling shares in their trading company

What it saves

A reduced capital gains rate on qualifying gains up to a lifetime limit of 1 million

What it costs

Requires two years of qualifying ownership and a genuine trading company

Break even

Always check eligibility before agreeing a sale, not after

How it is set up

1. Check you have held at least 5% for at least two years.
2. Clean up any large investment assets sitting in the company.
3. Time completion to suit the tax year and your other income.

Watch out: Too much cash or property in the company can make it fail the trading test.