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Extraction of funds from Limited Company

Extraction of funds from Limited Company

A director wants to extract £300,000 out of his company reserves to purchase a property for personal use.

Looking  at alternative to dividends to save tax.

Any suggestions please.

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19th Feb 2016 13:12

Presumably your "director" is

Presumably your "director" is also a shareholder.

What is the extent of his shareholding?

Presumably the company is trading as a going concern, and is still required?

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By abbas g
23rd Feb 2016 11:20

Thank you

The director is also a sole shareholder.

Company is still required.

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By jonnyd
19th Feb 2016 13:56

Profit extraction-SSAS is answer

If it is a commercial property-Form a SSAS and make maximum contributions with rest borrowed. Perfect solution from tax perspective and also going forward.

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19th Feb 2016 15:26

£40k annual limit assuming no pension in PYs. Also i thought ca

jonnyd wrote:

If it is a commercial property-Form a SSAS and make maximum contributions with rest borrowed. Perfect solution from tax perspective and also going forward.

 

£40k annual limit assuming no pension in PYs.

Also i thought can only borrow 50% of pension value?

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19th Feb 2016 14:01

Are there many commercial properties that are used for "personal use"?

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By jonnyd
19th Feb 2016 15:02

Personal use

The query did not specify "residential" use so the commercial property could be being used for (say) another sole trader business used by the Director? 

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By DJKL
19th Feb 2016 17:55

If trade to continue

If trade (is there a trade?) to continue one simple route might (in the short term) be a loan  by company to individual and then deal with P11D issue re interest and company deals with s455 tax in the short term. Not very satisfactory if protracted time to repayment but if say company wind up/ sale envisaged in  next couple of years may be a solution.

Of course predicated on company having sufficient liquid funds to make loan and pay the S455 tax and individual being able to pay the tax on the BIK from his/her income and repay the loan later.

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20th Feb 2016 09:53

Solvent liquidation?

Potentially a solvent liquidation?

The shareholder may qualify for Entreprenuers Relief at pay 10% on the funds withdrawn. Lots of ifs and buts with this option, but worth exploring.

Happy to answer any specific queries as I am a licensed insolvency practitioner.

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20th Feb 2016 10:26

Trading

Jamie Playford wrote:

Potentially a solvent liquidation?

The shareholder may qualify for Entreprenuers Relief at pay 10% on the funds withdrawn. Lots of ifs and buts with this option, but worth exploring.

Happy to answer any specific queries as I am a licensed insolvency practitioner.

If there is no intention for the trade to stop, distributing in this way and opening another company will be caught be transactions in securities.

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By jonnyd
20th Feb 2016 16:27

£40k limit?

Use carry forward provisions to use up previous 3 years unused allowance and if married(for instance) , include spouse as member of SSAS to do same thing-with borrowings you can easily reach the £300k required (but of course subject to it being non residential).

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23rd Feb 2016 11:33

Thanks. So he can't do a purchase of own shares or liquidate the company,

So unless the pension route described above works, which it essentially won't if the property is a residential one, it's dividends only I'm afraid.

Needles to say you need to look at the advantages of dividends before 6 April being taxed at the lower rates currently in place. 

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By abbas g
23rd Feb 2016 11:34

Thank you

The property is going to be used as a second home. Some business for the Ltd company will be done from there.

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By Mr_awol
23rd Feb 2016 16:23

Company house?

abbas g wrote:

The property is going to be used as a second home. Some business for the Ltd company will be done from there.

Second home - but let out when not used by director, or available to him all the time?  How long will this arrangement go on for?

Depending on the answers, might be as well to just buy it through the company and then declare it as a BIK, rather than vote dividends............

 

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By abbas g
23rd Feb 2016 11:40

Thank you

If he liquidates the company on the basis that the dividend regime is changing next year and goes self employed to continue his business, would the Entrepreneur relief at 10% work if he is a 45% personal tax rate payer.

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23rd Feb 2016 12:28

He'd have to liquidate prior to 5 April, which doesn't leave a lot of time. Any later than that and he'll be caught by the amendments to the transactions in securities legislation.

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23rd Feb 2016 14:01

Yes if he doesn't mind the effect on his business of disincorporating then liquidation is indeed an option (despite what I said), but as SteLacca says he will have to be quick to avoid the rule changes designed to stop exactly this.

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By abbas g
24th Feb 2016 13:14

The 2nd home will be available to him at all times. No end date for this.

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By Mr_awol
24th Feb 2016 14:33

Calculate the tax and NI due on the BIK (including payment of council tax and services as appropriate).  You might be pleasantly surprised.

Of course there's other considerations too, you'll still want the cash out one day im sure, but if its (say) a 5-10 year plan then a company house works out quite nicely.

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