My clients are husband and wife and trade in a 50/50 company. Paid up shares £100, Undistributed reserves £200k. They are looking to wind the company up as their trading has virtually ceased, and will probably retire. We are going to get professional tax advice, but I would like to get a grasp of their options before being blinded by the adviser's science!
As I understand it, they would be able to take advantage of ESC 16 to pay out the reserves - subject to the usual declarations to HMRC. Am I right in thinking that they would then be liable to CGT on, say, £100k each, but would be able to claim Entrepreneurs' Relief. So their tax liability would be £100k x 4/9 x 18% (less their annual exemption)? Or is there any way to get the lolly out straightaway without incurring CGT?
Alternatively, could they pay dividends for the next few years without incurring tax as long as they kept beneath their annual 40% bands?
Any thoughts would be greatly appreciated. Thanks.
Bob Doney
Replies (2)
Please login or register to join the discussion.
Initial thoughts broadly correct
1. Yes, ESC C16 could be used to avoid cost of liquidation.
2. Yes, they would be liable to CGT on distribution but entrepreneurs relief should be available. Tax liability is actually £100k x 5/9 x 18%, i.e. £10k ignoring the annual exemption.
3. Dribbling the money out as dividends over a period of years within their basic rate bands is also an option. However, unless the cash was invested mainly in property, the company would probably be a close investment holding company and therefore liable to corporation tax at 28%.