Using a Limited Company to Grow Investments Tax-Efficiently

If your private practice company holds more cash than it needs, company investments can put that money to work without first extracting it as personal income. This can leave more capital invested at the start, but it usually delays personal tax rather than removing it.

Investing through a company can suit some NHS consultants, particularly those with long-term surplus profits. The result depends on the investments you choose, how you will eventually take the money and whether the investments affect your company’s tax position.

Why Consultants Consider Company Investments

The main attraction is the amount left to invest. Your company has already paid Corporation Tax on its profits, but a personal tax charge usually arises only when you take them out.

For example, assume your company has £100,000 of surplus cash after Corporation Tax and you would pay the 2026/27 additional dividend rate of 39.35% on all of it. Ignoring the £500 dividend allowance, paying it out as a dividend would leave £60,650 to invest personally. Keeping it in the company would leave the full £100,000 invested.

That larger starting amount is useful only if the company’s returns, tax and running costs still leave you better off when you take the money out.

How Tax Applies to Company Investments

The tax treatment depends on what the company holds.

Investment return	General company treatment
Bank interest	Taxable as company profit
Dividends from shares	Generally exempt from Corporation Tax, although exceptions apply
Gains on shares and equity funds	Usually taxable on sale, with no annual exempt amount
Investment bonds and bond funds	Often taxable each year under the loan relationship rules, even without a withdrawal

Corporation Tax is currently 19% where profits are £50,000 or less and 25% above £250,000, with marginal relief between those limits. Associated companies reduce those limits. Exempt dividends from companies outside your group can also count when working out which rate applies.

Those limits are generally available to a company controlled by a small group of people if it exists wholly or mainly to trade. A company set up simply to hold investments will usually be a close investment-holding company, which pays 25% whatever its level of profit. The same could apply if investing became the main purpose of your practice company.

The Tax When You Take the Money Out

Company investments can create two layers of tax. The company pays tax on taxable returns, and you may pay personal tax when you extract the proceeds.

Assume a company makes a £10,000 taxable gain, pays Corporation Tax at 25% and distributes the balance as a dividend at 39.35%. You would keep £4,549. The same gain made personally would leave £7,600 at the 24% higher Capital Gains Tax rate, before any annual exemption.

This comparison leaves out any extra capital you kept invested by using the company. It does show why the timing of extraction matters. If your income will be lower after retirement, a planned extraction may produce a different result from taking the money while you are still working. The government also plans to change the tax treatment of some company distributions and capital repayments from April 2028, so review long-term plans as the detail emerges.

How Investments Can Affect Trading Status

Holding investments may affect whether your company still qualifies as a trading company for tax reliefs. This matters if you plan to sell or close the company and claim Business Asset Disposal Relief.

A company does not count as trading if its non-trading activities are substantial. HMRC weighs up indicators such as non-trading income, assets, expenses and time spent. It says a case is unlikely to need more detailed review if non-trading income and assets do not appear to exceed 20%, but this is not a fixed test. The trading condition generally applies for the two years before a sale, so review cash and investments well in advance.

The government also plans to cut the Business Asset Disposal Relief lifetime limit from £1 million to £500,000 for disposals on or after 6 April 2027. This still needs to pass through Finance Bill 2026-27. Investments can also affect inheritance tax relief on company shares, so consider your wider estate plans too.

Questions to Ask Before Investing

• Is the cash truly surplus? Keep enough for tax bills, practice costs and any planned spending.
• When will you need the money? Short-term funds may need to stay accessible.
• How will you take it out? Your likely income in later years can affect the tax you pay.
• Have you considered pension contributions? Company contributions and NHS pension growth both count towards your Annual Allowance.
• Should the investments stay in this company? A separate structure may help in some cases, but it adds cost and administration.
• Who is advising on the investments? Tax planning does not replace regulated advice on whether a particular investment is suitable.

How Nichols Medical Accountants Can Help

The right approach depends on how much cash your company holds, your income plans and what you want the money to do. Nichols Medical Accountants can help you review the tax position as part of your wider planning for consultants.

You may also find our guides to surplus funds from private income, income extraction and Family Investment Companieshelpful.

If you are considering investing through your company, contact Nichols Medical Accountants to discuss your circumstances.