Moving abroad for a year- can I withdraw all company retained profits to avoid tax?

[ContractHK]

Hi,

I have a substantial amount of retained profits in my Ltd company. I always take the maximum £42k (salary and dividend) to avoid being pushed into the higher rate tax band. I've been fortunate enough to have a good rate, and even after pension contributions and expenses, over the course of 5 years have built up a sizable warchest which I've paid CT on but not declared as a dividend.

To actually get this money into my hands without paying the higher rate band, would it be possible to take a contract in a low/no dividend tax country (i.e. Singapore, Hong Kong, Dubai), become non resident for tax purposes in the UK for that year, and then withdraw all the retained profits from my Ltd company, thus avoiding any tax on the dividends?

Thanks in advance for any help.

[northernladuk]

Nope, this would be an artificial arrangement to avoid tax which the govt consider aggressive tax avoidance.

Just liquidate the company and do it properly?

[ContractHK]

In that case- how long would I need to be non-resident before I wouldn't be liable for UK tax on dividends? It must be possible at some point, since people who have moved abroad for a reasonable length of time don't pay UK income tax anymore, they pay the tax of the country they are resident in.

I wouldn't really have any issues with staying out of the UK more than 1 year really- though would not plan to be moving abroad permanently neccesarily (want to keep the door open for coming back at least).

[Wanderer]

Just liquidate the company and do it properly?

That's probably the best option, check out Members Voluntary Liquidation.

If you keep the company and pay out salary/dividends over the next few tax years while working in some other country then it could complicate your tax affairs. Many jurisdictions seek to tax your worldwide income so you definitely want professional advice on that. Even then, some people are flogging tax avoidance schemes which drop you into a load of hot water in a few years time (when they are long gone) so tread carefully.

[Jessica@WhiteFieldTax]

In theory its possible.

You need too take paid advice on this, its too detailed for a free forum.

Quick thoughts:

1. Check proposed host country rules on taxing dividends and gains; else you could just land tax there.

2. To get an income tax exemption (if planning in drawing a dividend) you will need to comply with latest HMRC residence rules.

HMRC updated residence and non residence guidance | Whitefield Tax Limited

Broadly, and grossly simplified, that will mean working abroad for a complete tax year.

3. To get CGT exemption - if you are considering closing your company - you will need to be non resident for 5 years, unless you can find a treaty with a shorter limit (Belgium used to work for 12 months, but its a decade or more since I've last researched it - treaty limits are becoming rare)

E&OE

[chinglish]

Hi,

I have a substantial amount of retained profits in my Ltd company. I always take the maximum £42k (salary and dividend) to avoid being pushed into the higher rate tax band. I've been fortunate enough to have a good rate, and even after pension contributions and expenses, over the course of 5 years have built up a sizable warchest which I've paid CT on but not declared as a dividend.

To actually get this money into my hands without paying the higher rate band, would it be possible to take a contract in a low/no dividend tax country (i.e. Singapore, Hong Kong, Dubai), become non resident for tax purposes in the UK for that year, and then withdraw all the retained profits from my Ltd company, thus avoiding any tax on the dividends?

Thanks in advance for any help.

I did exactly that, I am not resident in the UK nor do I plan to come back. You must prove that you do not intend to return although this does not mean you can't return if circumstances change. To do this you must have no home to return to in the UK (letting is fine as you can' just take it back), wife and children if any must leave the country with you so no reliance on education and health service. Basically you and your family must break all ties with the UK apart from visiting.

Reading through your post you plan to return - so probably seen as agressive tax avoidance. I do not plan to return - but could if circumstances change. I think if you returned after one year HMRC would hammer you - they are watching me by speaking to the letting agent of my home as I also receive rent without tax deducted being non-resident. I do not see what I did as tax avoidance as I really was emigrating after marrying a foreigner - and would not be using the services that the tax was being paid for anyway. It is not as simple as just leaving for 1 year - lots more would do it otherwise.

[Gonzo]

The way that HMRC will treat the payments is only half the story.

It would be wise to take local advice from the country that you plan to move to and find out exactly how the authorities there will view your company and the payments that you take from it, if you keep it going after leaving the UK.

Some countries don't care, but others will take the view that your company becomes resident in their jurisdiction when the direction and control (if you are the only director then that means you) becomes resident in their country.

EDIT I ended up taking the retained funds as a capital distribution and paying the CGT in the UK when I left. That was back in the days that ESC16 could still be used so it was cheap and simple to close the company.