company closure vs dividend during maternity

[Bgs2010]

Hi,
I have tried to research a lot on the forums about my situation but not yet found a satisfying answer.
I worked as contractor for 2 years and took the low salary/high dividend payment option.
Now I have moved to a full time perm role.

I have roughly 100k sitting in my biz bank account. The last invoice was six months back.
I would be going on maternity leave later this year. Because of my duration with current employer I do not think I will qualify for SMP. I might just get the basic maternity allowance. That should leave me with an income below the highest tax band.

This has raised a question for me.
Option A
Close the company
Pay capital gains tax of roughly 28%
Remaining balance 72K transferred to personal account.
Assuming I take out all of it would I pay 40% personal tax on the 72K? approx 28K
leaving me with roughly 44 K

Option 2
make the company dormant and take money out as dividend while I am on Mat leave
Can I extract aprox 80K over one financial year (expecting 52 weeks of maternity leave at basic maternity rate)?
Will I be paying 40% personal tax on this or the more graded one of 10%, 35% and 37.5 % HM Revenue & Customs: Income Tax allowances


I would appreciate any help.

[Contreras]

Option 2
make the company dormant and take money out as dividend while I am on Mat leave
Can I extract aprox 80K over one financial year (expecting 52 weeks of maternity leave at basic maternity rate)?
Will I be paying 40% personal tax on this or the more graded one of 10%, 35% and 37.5 % HM Revenue & Customs: Income Tax allowances

If you do this then its 22.5% to pay on the portion of gross dividend that takes you over the high rate threshold, which in effect is 25% on the net amount that the company paid out.

If the company pays £100k net dividend, this is (/0.9) = £111k gross dividend. If you have already received salary from the permie role to take you above the high rate tax threshold + personal allowance then the full amount of dividend is taxed so no need to gross up, it's just 25% on the net amount, i.e. £25k. If instead you hadn't hit the high rate threshold yet, let's say you have £11k headroom, then exactly £100k gross dividend would be above the threshold, so £22,500 in tax.

No comment on whether this is the right option for you. Or whether it's OK to draw dividends while on not trading, but I don't see why not.

[Maslins]

Are you confident you won't qualify for entrepreneurs relief on the CGT route? If you did qualify it'd bring the headline tax rate down from 28% to 10%, a hefty saving. Also, that 10% would be the entirety of the tax...your calcs seem to suggest you'd suffer CGT and then personal tax (which would never be the case).

I suppose the other question is how long do you anticipate remaining off work to look after the child? If you probably won't return to work for quite a few years, then the dividend option could be better as you could potentially avoid paying any personal tax at all by spreading it over 3+ years. If on the other hand you anticipate returning to work as soon as maternity ends, then the CGT route would probably make more sense.