'Repay' DLA on a solvent company via MVL

Can we avoid high-rate dividend tax with a non-cash distribution?

Didn't find your answer?

Just 'tossing thoughts around' and I wonder what our thoughts are in the the following situation. 

Individual runs a profitable and solvent Ltd company, and draws over £150,000 income over the course of a year. Before the end of the financial year, that business' contracts come to an abrupt end and the individual (100% director and shareholder) decides to take the opportunity to retire. 

Rather than declare a dividend to repay the DLA balance and incur high rate tax and PA abatement... etc, can we opt for an MVL (the only asset being the overdrawn DLA balance; no creditors) and make a non-cash distribution to the shareholder in the amount of the DLA balance, thereby incurring only CGT at Entrepreneurs Relief rate?

Replies (6)

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RLI
By lionofludesch
09th Jun 2017 13:01

Sort of. If I understand your plan correctly.

But it'd be nice if there was evidence of these transactions with money travelling in a circle. Director repays loan, company is dissolved and money is distributed back to the director.

So - how much is the director's loan and why can't a bloke on £150000 a year send the money off on a tour for a couple of days?

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By MBK
09th Jun 2017 13:30

Alternatively (as you have to have a liquidator in place anyway to get the CGT treatment) why not send £10k in a circle 15 working days in a row (or any divisor thereof - so to speak!!).
In theory, distributing the debt could work. I just wouldn't want to rely on it if real cash can move.
The client will, of course, be aware of the new TAAR.

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Replying to MBK:
RLI
By lionofludesch
09th Jun 2017 13:52

He doesn't say there's £150000 to distribute.

He says the director has had an income of £150000 a year.

There may only be a fiver left in the kitty for all we know. The OP doesn't say.

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Replying to lionofludesch:
Mike James accountant ashford kent award winning
By Jamesm96
09th Jun 2017 14:42

Quote:

He doesn't say there's £150000 to distribute.

He says the director has had an income of £150000 a year.

There may only be a fiver left in the kitty for all we know. The OP doesn't say.

Thanks lionofludesch. Apologies - I wasn't clear. In this instance the £150k would represent drawings on his DLA not yet covered by either dividends or salary / bonus, together with interest at the official rate; distributable reserves are sufficient to cover the £150k balance in full.

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Replying to Jamesm96:
RLI
By lionofludesch
09th Jun 2017 18:21

So you're going to need a formal liquidation then.

OK - well, I suppose you'll need that either way.

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Replying to MBK:
Mike James accountant ashford kent award winning
By Jamesm96
09th Jun 2017 14:39

"The client will, of course, be aware of the new TAAR."

Thanks MBK. He would be, yes (it's not got that far at this point), but I wouldn't expect that to apply as this client would not continue to have any involvement in any trade or activity (let alone a similar one), and I would suggest that the main purpose of the winding-up would be the loss of contracts with no future prospects, with assets exceeding £25k.

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