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Company ceasing

I have a company with a very healthy balance sheet : Residential Properties £450K Liquid Investments £400k.Creditors covered by cash in bank.The directors have decided to cease trading in March 2013. It appears at first sight that there are few reliefs available because of volume of non qualifying assets. The tax due on sale of properties will be in region of £60k which seems to me that the directors/shareholders will have a tax bill of around £300K on closing down.

The company is an IT consultancy but for reasons best know to the directors and against all advice chose to buy the properties in company and retain all funds inside the co.

I will be looking at members winding up,redundancy payments etc  which will give some relief but would welcome any comments on above situation.

many thanks,

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02nd Jan 2013 11:45

Why wind up?

You appear to be assuming that ER is not available. This may well be the case but depends on the level of trading activity.

If you are correct that there is a tax bill of £300k on winding up I would question the sense in winding up at all. Owning property investment via a company is not such a bad idea. Income is only liable to 20% tax. They can control the level of dividends paid to minimise higher rate tax. Capital gains are also only taxed at 20% unless profits exceed £300k (and marginal rates of CT are dropping fast) with the benefit of indexation allowance.

Such a company can also be an excellent vehicle for IHT planning. With sufficient trading activity (which can be generated via passive activities such as leasing, forestry, etc), the shares can qualify for BPR and the investment properties should not count as excepted assets.

Personally, even if the tax cost to wind up was nil, I would seriously question the sense in doing it. I accept that it does depend on the personal circumstances of the shareholders.

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By Tosie
03rd Jan 2013 20:49

thank you

Thank you for advice. The directors have fallen out and one wants the money out of the company. The company is still trading and both directors are full time working but I see  the balance sheet ratio as the problem. Many thanks

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04th Jan 2013 10:18

Better solution

Depending on the detailed circumstances, I am virtually certain there is a solution that will achieve the objective at a seriously lower tax cost. Possibilities include using a newco or a demerger.

I recommend seeking tax advice.

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