Tax implications of holding investments via a company

When considering purchasing investment property, (or any other form of investment for that matter) it can be tempting to purchase via an existing company. Usually this is a trading company. The advantage of this is that by using the company's retained earnings you can avoid an income tax charge on the extraction (usually a 25% tax charge). However in the longer term, holding investments via the company may not be advisable. One of the main drawbacks is that it can taint the trading status of the company for tax purposes. This could result in the shares losing any entitlement to business property relief (or at best it would be restricted) for the Inheritance tax exemption. In addition Entrepreneurs Relief, which can reduce the capital gain on disposal by 4/9 can also be impacted. This could prove to be very costly if you are looking at a future sale of the shares. The Revenue will usually class the Entrepreneurs Relief status as 'tainted' where more than 20% of the company assets or profits derive from a non trading source. The other implication is that holding investments particularly valuable property via a company could significantly increase the tax charge on disposal due to the double charge to tax. (ie a tax charge in the company, and another on the extraction of the funds). Therefore care should taken when using a company to hold investments.