Capital Distribution - Limited Company

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Hello All,

Please can someone assist me with a query? I have been the Director of a Limited Company for around four years. The purpose of the Company was solely for me to purchase a residential property to rent as I was advised to do it this way around from a tax perspective.

I am now looking to sell the residential property and to strike-off the Limited Company. The accountant I use to do my annual accounts is a no-frills service. I hardly have any questions to ask and only use them to do the accounts, given that I only earn £875.00 per month / £10,500.00 per year.   As they are a no-frills service, they are struggling to give me an answer to my query but it's probably got something to do with the way I'm asking it!

When I sell the residential property, I'll have around £24,500.00 left from the sale. I want to know of the most tax-efficient way for this money to get to me. I'm aware of something called capital distribution. Based on what I have read on HMRC and from my accountant, my understanding is that if the total amount of capital distribution is under £25,000.00, then it would be taxed at 10% rather than 40% which is my personal income tax rate. Is that correct? If so - what would happen if I sold my residential property for slightly more, and the capital distribution amount was over the £25,000.00 threshold - would it then be classed as a dividend and subject to income tax? If that is correct, would the first £25,000.00 be taxed at 10% with any remaining funds taxed at 40%? 

Any help on this would be greatly appreciated.

Many thanks

Replies (9)

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By cohen
23rd May 2024 16:32

It sounds like you need an accountant with some frills.

You could start here:

https://www.icaew.com/about-icaew/find-a-chartered-accountant

Thanks (5)
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By Paul Crowley
23rd May 2024 16:42

You need a proper accountant.
You got what you paid for before this. Compliance with no advice.

Thanks (4)
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By nrw2
23rd May 2024 17:00

Simplistically / assumptively:

- if there are >£25k of assets on the balance sheet then you could pay a dividend to reduce the final value below £25k (it's important that it's not a penny over); then
- the pre-dissolution distribution could be treated as a capital distribution (BADR would depend on it being a trading company, amongst other things).

It's complicated and you should engage a professional who will almost definitely save you more than they cost you - financially and emotionally.

Thanks (2)
Replying to nrw2:
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By VPatel2707
23rd May 2024 17:11

Thank you for your reply - I'm currently looking for a local accountant that I can speak to!

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Replying to VPatel2707:
DougScott
By Dougscott
23rd May 2024 17:57

Make sure they are qualified and reputable.

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Replying to nrw2:
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By mumpin
23rd May 2024 19:35

"...then you could pay a dividend to reduce the final value below £25k..."

I thought that there was legislation that prevented this approach.

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By Paul Crowley
23rd May 2024 17:16

Forget the 10%
Unlikely that this is a trading company.

Thanks (4)
Nichola Ross Martin
By Nichola Ross Martin
23rd May 2024 17:39

Up to £25k you can strike off the company and extract the remaining funds as capital proceeds. As noted you might want to take a dividend to ensure that the company assets are <£25k. otherwise you need to consider liquidation. If you have a tax avoidance motive this could result in any distribution on liquidation being subject to Income Tax instead.
https://www.rossmartin.co.uk/ceasing-trading/4076-ceasing-trading-index-...

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Replying to Nichola Ross Martin:
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By Paul Crowley
24th May 2024 10:20

Surely the actions you describe have a tax avoidance motive?
Good article. Noted that capital reduction or buy back of shares is not permitted unless trading.
That seems odd to me.

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