Closing your Limited Company with a low tax bill
Contractor's Question: I have a stack of cash sitting in my limited company. But I took a permanent job in March and I've not really been trading this year. I now intend to head overseas, probably to Singapore, to live for good. By that I mean if I leave there I will go to live in Australia with my spouse. I do not wish to return to the UK to work or live again. So what is the best way to get the cash out of my company, while minimising my tax liability?
Expert's Answer : When closing a limited company down and extracting cash you will need to consider both the legal and taxation processes.
Legally, the company must be formally liquidated or struck from Companies House, the register of companies, known as 'striking off'. Freelancers and contractors tend to use the latter approach as it is far cheaper, although it offers less legal protection.
Before you apply to strike off the company you should complete corporate tax returns and pay corporation tax on the profits made up to the date the company ceased to trade.
Any remaining money can be extracted as a dividend or capital distribution. For a UK-resident taxpayer, a capital distribution will usually result in a lower tax liability. To ensure distributions are treated as capital, an application must be made to HM Revenue and Customs to obtain their agreement. You will have to give an undertaking to make good any tax liabilities of the company.
Your situation is complicated by your residency status and your intention to leave the UK permanently. You are usually resident in the UK for a complete tax year. There is a split-year concession, but this will not cover dividends paid out of the company during the year you leave and your ability to qualify under it for capital gains tax purposes depends on how many tax years you have been resident in the UK previously.
You should seriously consider leaving the funds in the UK company until after the start of the new tax year, when you should be able to take the cash free of UK taxes. However, you also need to take into account any local tax implications, so I recommend you seek the advice of both a UK and Singapore professional to ensure you receive the best advice.
Answer provided by Paul Spindler, a partner at chartered accountants Kingston Smith LLP.
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