Following up on an earlier question this week, my client is a successful trading company, with a substantial cash balance. Other than extracting the cash and pay the tax I am doing some forward planning and obviously need to ensure Q trading status is maintained..
He has a property development opportunity and if the funds are extracted personally by a dividend then over 30% of dividend tax to pay so ideally the gross amount should be invested by the company.
Don't want to sound stupid but my question is. Is it possible to have a situation whereby, the surplus cash is invested by the company 'tainted amount' and in due course when the company is sold, ER is obtained @10% but for the tainted investment CGT is paid at 28%. This has been suggested to me but can not find any info on this.
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Sorry, but you'll need to clarify the question
You talk about extraction of funds and, at the same time, investment by the company.
And you refer to your client as being a company and at the same time refer to "he".
Please explain exactly what is being proposed.
In which case I still don't really understand the question.
The shares in the company will either qualify for ER or they will not. You cannot split the gain into a qualifying part and a non-qualifying part. (There is one exception, irrelevant to this case - where EMI and non-EMI shares are involved.)
If your ER in A is already tainted
If your ER in Company A is already tainted (excess cash argument- albeit if passively held there may be an argument it still qualifies) why not set up a wholly owned trading subsidiary of A, Company B, instead of a stand alone associate Company B ,and A invests directly in it rather than lends to it.
There may well be a stronger argument for a trading group and ER if it is an investment in a trading company.
Your argument that once B has repaid a loan A will sort itself into trading status via dividends appears expensive.