Retirement of Director

Retirement of Director

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We have a service company with 2 directors, the MD with ordinary shares and the FD with A ordinary shares.  The FD intends to retire within the next 6 months when he is 65.  The company has no assets apart from goodwill valued at circa £200K shared 85% to the MD and 15% to the FD who wishes to extract his share in the most tax efficient manner for himself and the company over a period of 3 years.  The options we have considered so far are:

1) Pay by way of bonus - CT relief but suffers tax and NI.

2) Dividends but no CT relief.  However, unlikely higher rate tax as FD will have reduced pension income.

3) Golden handshake - does FD qualify.

4) Company buys back shares.  Can FD use his CGT exemption for each year?

5) Use of Entrepreneurs' relief?

There must be other options available for consideration and we are open to suggestions. 

Replies (4)

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By johngroganjga
08th Apr 2014 16:28

If the company has no assets other than goodwill what is it going to pay bonuses or dividends with? 

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Replying to Paul Scholes:
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By Capitax
10th Apr 2014 12:17

If the company has no assets

The Company has a strong client base with ongoing recurring fees for future income.  Also, cash in the bank of circa £75K.

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By johngroganjga
10th Apr 2014 12:25

Then I suggest you rephrase your question - especially the phrase "no assets apart from goodwill".

So what is the agreed value of the FD's 15% share - 15% of £200k + 75k = £41.25k? - or something else?

The objective of maximising tax efficiency for the FD and the company at the same time is likely to lead to conflict.  You can't do both.  Who are you acting for here?

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Replying to andy.partridge:
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By Capitax
11th Apr 2014 13:18

Rephrase

Thanks

We will rephrase the question for a future posting when we have more time to consider the points raised.

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