Options for large amount of money in ltd company?

[syrio]

I'd be interested to hear any views on what you think the best option would be in the following situation.

I'm considering stopping contracting in the near future and I have about £1.7M in my limited company built up from retained profits over the years which I have invested in equities.

As I see it I have 4 options.

1. Close the company.

I'm assuming that Entrepreneurs Relief isn't going to be available to me for this amount of money.

As I have investments in the company, the company would pay £100k in capital gains tax when the investments are sold, then I would have to pay higher rate capital gains tax at 28% on virtually all of the remaining £1.6M.

I would be left with approx £1.15M after paying £550k in tax.

If I did get Entrepreneurs Relief then I would only be paying 10% in tax so I'd be left with approx £1.44M after paying £260k in tax.


2. Keep company running and keep extracting money via salary, dividends and SIPP.

I keep the company, and every year I extract as much as I can without paying higher rate tax. Its unlikely that I would ever get all the money out this way.

There are some advantages to having money inside the company, the company gets indexation relief on capital gains and it only pays corporation tax at 20%.

Downsides to this are: I have the extra paperwork and cost involved in running the company. I will soon be paying the new 7.5% tax on dividends. Obviously I don't have access to all the money as I would if I withdrew it, but that isn't really a problem as I would have more than enough to live on.


3. Move abroad to a country that doesn't tax foreign dividends and take all the money out as dividends.

As suggested in this thread:

http://forums.contractoruk.com/accou...ml#post2116472

Apparently I would have to be non-resident for UK tax purposes for 5 years.

I'm not sure how practical this is for me, I don't want to have to organise my life around my tax situation. But I can see that I might want to live somewhere else for other reasons in the future. So this might become an option.


4. Enterprise Investment Scheme tax relief.

I'm not quite sure how of the details of this option, but potentially I could take the money out as dividends over several years and put it into Enterprise Investment Schemes so I would get tax relief and end up paying virtually no tax on the withdrawals.

The company would be paying £100k in capital gains tax as in option 1 when company investments are sold as in option 1 (close the company)

The big downside of course is that the money is tied up in EIS for several years, and these are risky investments, so I may well lose money or be worse off than if I had just withdrawn the money, paid tax and invested it elsewhere.


I'd be interested to hear what other people would do / have done in this situation. Are there any other options available which I have missed.

[WordIsBond]

You can probably afford professional advice, and chances are good that anyone on the Internet who says they have that kind of money doesn't actually have it. So you aren't likely to get great advice here from anyone who really knows the best options. The few accountants who post here and might be able to answer your question probably deserve to be paid for their time for something this important.

[jamesbrown]

Agree with WIB. There's no harm in soliciting ideas, I suppose, but it's going to be pretty redundant, in practice, if you're then seeking input from a good professional (as you should be for the sums involved, and I would probably seek a second professional opinion too).

FWIW, if YourCo is a designated CIHC, you're definitely not eligible for ER. If it's a trading company, you're probably still not eligible for ER (or you'd be on very shaky ground), given that the funds have been actively invested.

[Iliketax]

If I was giving you advice, I'd want to know what you would do with the money if you took it out of the company. That way you can compare the post-tax treatment of the various alternatives. And if you don't need cash out of the company, why bother?

I'd also suggest you think about your IHT position (e.g. the lack of availability of BPR at the moment).

[PerfectStorm]

I hope it's in a business savings account in the meantime! That's quite some warchest.

[DeludedAussie]

You can probably afford professional advice, and chances are good that anyone on the Internet who says they have that kind of money doesn't actually have it. So you aren't likely to get great advice here from anyone who really knows the best options. The few accountants who post here and might be able to answer your question probably deserve to be paid for their time for something this important.

I would be quite interested in seeing this discussion continue online.

[DeludedAussie]

I'd be interested to hear any views on what you think the best option would be in the following situation.

I'm considering stopping contracting in the near future and I have about £1.7M in my limited company built up from retained profits over the years which I have invested in equities.

As I see it I have 4 options.

1. Close the company.

I'm assuming that Entrepreneurs Relief isn't going to be available to me for this amount of money.

As I have investments in the company, the company would pay £100k in capital gains tax when the investments are sold, then I would have to pay higher rate capital gains tax at 28% on virtually all of the remaining £1.6M.

I would be left with approx £1.15M after paying £550k in tax.

If I did get Entrepreneurs Relief then I would only be paying 10% in tax so I'd be left with approx £1.44M after paying £260k in tax.


2. Keep company running and keep extracting money via salary, dividends and SIPP.

I keep the company, and every year I extract as much as I can without paying higher rate tax. Its unlikely that I would ever get all the money out this way.

There are some advantages to having money inside the company, the company gets indexation relief on capital gains and it only pays corporation tax at 20%.

Downsides to this are: I have the extra paperwork and cost involved in running the company. I will soon be paying the new 7.5% tax on dividends. Obviously I don't have access to all the money as I would if I withdrew it, but that isn't really a problem as I would have more than enough to live on.


3. Move abroad to a country that doesn't tax foreign dividends and take all the money out as dividends.

As suggested in this thread:

http://forums.contractoruk.com/accou...ml#post2116472

Apparently I would have to be non-resident for UK tax purposes for 5 years.

I'm not sure how practical this is for me, I don't want to have to organise my life around my tax situation. But I can see that I might want to live somewhere else for other reasons in the future. So this might become an option.


4. Enterprise Investment Scheme tax relief.

I'm not quite sure how of the details of this option, but potentially I could take the money out as dividends over several years and put it into Enterprise Investment Schemes so I would get tax relief and end up paying virtually no tax on the withdrawals.

The company would be paying £100k in capital gains tax as in option 1 when company investments are sold as in option 1 (close the company)

The big downside of course is that the money is tied up in EIS for several years, and these are risky investments, so I may well lose money or be worse off than if I had just withdrawn the money, paid tax and invested it elsewhere.


I'd be interested to hear what other people would do / have done in this situation. Are there any other options available which I have missed.

Very well done for being disciplined enough to save this sort of cash - An example for all of us.

How many years did it take to do this - Must be 30 + and you must have been very fortunate with equity investments

[syrio]

Agree with WIB. There's no harm in soliciting ideas, I suppose, but it's going to be pretty redundant, in practice, if you're then seeking input from a good professional (as you should be for the sums involved, and I would probably seek a second professional opinion too).

FWIW, if YourCo is a designated CIHC, you're definitely not eligible for ER. If it's a trading company, you're probably still not eligible for ER (or you'd be on very shaky ground), given that the funds have been actively invested.

I have had a first meeting with an IFA which is where the Enterprise Investment Scheme option came from. I'll see what they come up with, and yes I think a second professional opinion is a good idea. Preferably with someone I'm paying directly for advice rather than working on a % of funds fee basis.

As you say ER is not really an option.

[syrio]

If I was giving you advice, I'd want to know what you would do with the money if you took it out of the company. That way you can compare the post-tax treatment of the various alternatives. And if you don't need cash out of the company, why bother?

I'd also suggest you think about your IHT position (e.g. the lack of availability of BPR at the moment).

Well, if I took it out the company I'd probably just re-invest it in much the same way as it is invested at the moment. And I don't really need the money out of the company. So keeping the money in the company seems like a reasonable option. This was always my original plan, to keep it as a warchest.

The downsides to keeping the money in the company are:

The costs of running the company, say £1200 a year in accountants fees, which is not really that significant when compare to the other options.

The minor hassle of the admin required in running a company. Not really much of a problem now, but I could see that in my very old age, I might start to struggle with this and prefer too keep things simple. But that's a long way off I hope.

Lack of access to the money, not really that significant since I don't really need it, I'm quite happy living off what I can withdraw yearly.

The possibility that the tax situation for CIHCs might become much more disadvantageous and I'll regret not taking the money out when I had a better chance. OTOH it might become more advantageous, who knows.

I'm not worried about my IHT situation, I don't have any dependents. If I did go for the Enterprise Investment Scheme option, then I believe money in there would avoid IHT.

[syrio]

I hope it's in a business savings account in the meantime! That's quite some warchest.

It's mostly invested in equities, shares and ETFs. I have some cash, but not much. I started investing after maybe 6 years or so when I realised I had several hundred thousand building up and I was getting very little return on it. Difficult to get a decent return on business savings accounts.