If I paid dividends from my small ltd company directly into personal ISAs, would I avoid paying tax on them?

21 January 2022

Question by Paul

If I paid dividends from my small ltd company directly into personal ISAs, would I avoid paying tax on them?


Answered by Boring Money

Hello Paul,

Thank you for your query.

Unfortunately you will still pay tax on your dividends if you reinvest the money into personal ISAs. The limited company will pay corporation tax on the money before it is paid to you and you will pay dividend tax on what you receive personally. Once in the ISA though, the capital will grow free from tax; in addition withdrawals and gains will also be tax free.

Depending on your wider situation and needs, one option could be to pay a pension contribution from the limited company into your pension. There are some criteria to meet but if met the contribution (paid from pre - tax profits) saves corporation tax for the company and is added to your pension provision to provide you with an income in retirement. Lots of things to consider on this point but it is worth considering. The biggest difference between ISA and pension is accessibility, as typically you can't draw from your pension until age 55 (soon to be 57!) but the money will be retained in the tax efficient pension plan until that point. Whereas you can dip into your ISA at any age.

Hopefully this helps with your query but please get in touch if need any further clarification.

Best wishes

Laura

Answered by

Boring Money