Divs or capital gains tax

[richy]

Hi.

I'm runing a ltd, and quite a bit of cash building up in the biz now.

Eventually i'll go perm somewhere, so is it better to leave money in the biz for now? ATM i do divs upto the point where they would fall into 40% tax rate.

When I wind up the ltd in a few years i'll have to pay capital gains tax on the money left in the biz.. so does it work out better to do divs now (upto 40% bracket)? or to not even do divs, and take it all as capital gains at the end?

Cheers, rich

[sweetandsour]

Hi.

I'm runing a ltd, and quite a bit of cash building up in the biz now.

Eventually i'll go perm somewhere, so is it better to leave money in the biz for now? ATM i do divs upto the point where they would fall into 40% tax rate.

When I wind up the ltd in a few years i'll have to pay capital gains tax on the money left in the biz.. so does it work out better to do divs now (upto 40% bracket)? or to not even do divs, and take it all as capital gains at the end?

Cheers, rich

The answer depends on the rest of your personal circumstances.

I suggest that you seek the advice of an accountant.

[Fred Bloggs]

Indeed, WHS, but if you can afford to tie up the cash long term then think seriously about putting a large amount of the cash into a SIPP.

[richy]

The answer depends on the rest of your personal circumstances.

I suggest that you seek the advice of an accountant.

Good point. Well if I don't need the money immediately, my feeling from SJD website is that I would have more money if I waited until I wound the ltd up in a few years time.

Although I don't know what I will do, and may be simplest just to at least keep taking out in divs up to 40% tax bracket each year.

As divs don't have any more tax levied on them.. i can't see that there would be any better way to get the money via capital gains.

So only money left in biz account above what I am taking for divs would be subject to the capital gains taxes as I understand it.

I'd speak to my accountant, but sometimes its hard to understand his replies!

cheers, richy

[ASB]

Good point. Well if I don't need the money immediately, my feeling from SJD website is that I would have more money if I waited until I wound the ltd up in a few years time.

Although I don't know what I will do, and may be simplest just to at least keep taking out in divs up to 40% tax bracket each year.

As divs don't have any more tax levied on them.. i can't see that there would be any better way to get the money via capital gains.

So only money left in biz account above what I am taking for divs would be subject to the capital gains taxes as I understand it.

I'd speak to my accountant, but sometimes its hard to understand his replies!

cheers, richy

As a general principle - though details will depend on individual circumstances.

- Take dividends to the 40% threshold per shareholder since there is no further tax to pay. If you wish, carry on doing this for the next 'n' years. However if you are earning income from elsewhere this progressively means less dividends.

- If the shareholders have no other income then, if possible, pay them a salary equal to the nil rate tax band or NI thresholds. This then attracts no tax and gives them a years NI credit for pension and penefit reasons. In this case, since the company is not trading it will make a lost, this will give rise to either carry back or carry forward CT reliefs so this may give an opprotunity of reclaiming about 1k of CT - but of course since the company is trading it will need to submit accounts.

- When the retained profit per sharehold is down to about 40k wind up the company assuming you will get the entrepreneyrs relief. This then leads to a chargeable gain of arounf 10k thus no CGT.

Obviously you may need a bit of overlap. It may be worth taking longer over clearing out the funds or it may be worth taking the CGT hit depending upon the rest of your affairs.

Also if the co has loads of loot and is not trading you need to consider if there is any risk of it being treated as an inverment company in which you want get the cgt releif.

[ASB]

Indeed, WHS, but if you can afford to tie up the cash long term then think seriously about putting a large amount of the cash into a SIPP.

A possible problem with this approach is that if the company is not trading it has not income to offset the contribution against. The carry back/forward rules might enable the CT to be reclaimed from a previous year, but will only enable it to be claimed going forward if the profit is there in the future and this might be unlikely. If it is posdsible to carry back in these circumstnaces (and cases are pretty limited now) then the CT already suffered on the payment [or rather the source of funds for it] will be reclaimable but this will need checking and also will cause some accounting issues.