Limited Company Closure Route

[TheFaQQer]

Thanks very much for helpful responses.

Would it be beneficial to use the £5k dividend limit next tax year for myself and my spouse to exhaust the remaining profit in the limited company. Remaining profit (if any) can be released as capital gain. I will be on a £65k+perm role so not sure if this £5k dividend will affect my PAYE tax liability.

Or, should I go down the route of releasing all of the remaining profits (15-20k possibly) as capital gain? Will this need to be divided among shareholders?

The first £5k of dividend income is tax free, so even if you're a higher rate tax payer you pay 0% on that £5k.

[Fred Bloggs]

The first £5k of dividend income is tax free, so even if you're a higher rate tax payer you pay 0% on that £5k.

But as it counts against your total earned income, it will push another slice of salary from the standard rate in to the higher rate of tax category.

[alexmai]

The first £5k of dividend income is tax free, so even if you're a higher rate tax payer you pay 0% on that £5k.

Cheers!!

So, I can utilize the £5k dividend limit either when I am making my limited company dormant or when I am going for a strike-off?

[alexmai]

But as it counts against your total earned income, it will push another slice of salary from the standard rate in to the higher rate of tax category.

Ah yes, then yes it does affect my PAYE liability..

[WordIsBond]

But as it counts against your total earned income, it will push another slice of salary from the standard rate in to the higher rate of tax category.

No, it doesn't. Dividend income is the top slice of income. It will not affect PAYE liability.

I am not an accountant. Clear what I say with your accountant. Do not just follow Internet advice, verify.

That said, I think your best choices are as follows. It depends on whether you want the money now or not. As someone suggested, you can just put all profits into a pension fund and have no tax liability, corporate or personal -- but the funds are locked up until retirement. Reasonable, if your income is solid. Also, it means you have no hassles at all for having taken the funds as capital gains if you return to contracting in the next two years.

But, if you don't want to lock up the money, I'm pretty sure that what you want to do is this:
1. If you don't have any other shares / ETFs that pay dividends, yes, by all means take £5K each for you and your wife after 6 April. That takes your retained profits in the company down to about £12K, if I understand correctly (are you remembering corporation tax in your numbers here?).
2. Then, when you strike off, the remaining funds will be capital gains (since below £25K).
3. This also reduces the remaining amount which reduces the come-back on you if you return to contracting later.
4. Since the remaining amount will be divided among shareholders, it will be less than £10K per shareholder. As far as I know, the £11K CGT allowance applies and you will not then have any CGT liability at all.

In other words, I think you can get all of these funds out without any personal tax hit, and only paying any corporation tax that is due.

Verify with your accountant, as always.

[jamesbrown]

No, it doesn't. Dividend income is the top slice of income.

Yep. IIRC, the break even point for a higher rate taxpayer is something like 20k of dividends with the new rules. That (along w/ the IR35 caught scenario) shows how badly this was designed. Essentially, if you're a higher rate taxpayer from PAYE and you have a further 5k in dividends, you're quids in.

[alexmai]

No, it doesn't. Dividend income is the top slice of income. It will not affect PAYE liability.

I am not an accountant. Clear what I say with your accountant. Do not just follow Internet advice, verify.

That said, I think your best choices are as follows. It depends on whether you want the money now or not. As someone suggested, you can just put all profits into a pension fund and have no tax liability, corporate or personal -- but the funds are locked up until retirement. Reasonable, if your income is solid. Also, it means you have no hassles at all for having taken the funds as capital gains if you return to contracting in the next two years.

But, if you don't want to lock up the money, I'm pretty sure that what you want to do is this:
1. If you don't have any other shares / ETFs that pay dividends, yes, by all means take £5K each for you and your wife after 6 April. That takes your retained profits in the company down to about £12K, if I understand correctly (are you remembering corporation tax in your numbers here?).
2. Then, when you strike off, the remaining funds will be capital gains (since below £25K).
3. This also reduces the remaining amount which reduces the come-back on you if you return to contracting later.
4. Since the remaining amount will be divided among shareholders, it will be less than £10K per shareholder. As far as I know, the £11K CGT allowance applies and you will not then have any CGT liability at all.

In other words, I think you can get all of these funds out without any personal tax hit, and only paying any corporation tax that is due.

Verify with your accountant, as always.

Thanks very much. This seems to be the best route to take. I will check with the accountant as suggested.

I don't have any other dividend source, so I will definitely withdraw £5k for self and spouse. After this I will have around £7-10k profit left in the company (have accounted for CT).

Rest can be released as capital gains. After applying the £11k CGT limit, there may be no comeback 10% tax amount left at all.

So, If I do comeback to contracting, will the capital gains released (within the £11k limit) cause any issues?

In other words, If I start another limited company with the same "nature if business (SIC)", will this be a problem?

[john@UKCA]

The £11K CGT allowance applies to each shareholder so there will no need to claim ER with your wife as a shareholder.

Will be no problem coming back to contracting as ER not claimed.

[Mister Clark]

I've not read all the replies but I'm in the same boat as you; I'm in Oz and have been for the last 18 months. I've liquidated my company and received the first distribution a few days ago.

Things you need to consider.

1 - If you have a permanent residency visa (PR) in Australia then you will be taxed on all your worldwide income once you become a permanent resident so make sure you maximize your tax allowances before leaving. Your status as permanent resident/resident for tax purposes effectively kicks in the moment you enter Australia and depends on your visa.

2 - If you are on a 457/any other temporary workers visa you are only taxed on income from outside Australia earned as salary after you become a resident for tax purposes. If you don't already, you need to understand the difference between a permanent resident and a resident for tax purposes.

3 - If you have PR then any distribution made whilst you are a resident for tax purposes will be subject to capital gains in Australia. Effectively you would become resident for tax purposes the moment you arrive in Oz.

4 - If you are a temporary resident (457/working holiday etc) then any capital gain made whilst you are tax resident in Australia but not a permanent resident is not taxable in Australia.

5 - Now this bit you need to check, but, in a nutshell If you are outside the UK for 5 full tax years you will not be subject to CGT in the UK. Therefore, if you a non-tax resident of the UK and tax resident in Australia but not a permanent resident of Australia you can effectively take that cash tax free. However, if you have PR then the distribution will be taxed in Australia as a capital gain.

6 - If you go down the ER route, you can ask your accountant to make a protective claim for ER. The reason being that if you do decide to return to the UK inside the 5 year time frame but for some reason ER changes/is scrapped in the intervening years you can still claim ER as it was at the point in time the distribution/s were made.

7 - I'm not sure about this bit, but, I'm guessing that you could leave the UK and if coming to Australia as a temporary resident but resident for tax purposes then when you arrive you could issue a dividend for the remaining funds in the company and avoid the whole expense and time involved with an MVL.

I don't *think* you would be liable for tax in either country. Note that the 5 year rule applies however and if you return to the UK I believe you would be liable for tax at whatever rates (likely higher).


Just to give some context to how I've come to the above conclusions, my circumstances are:

- Currently non-tax resident of the UK.

- Sponsored visa (457)

- Temporary resident of Australia but resident for tax purposes due to my visa.

- Just finalised MVL. I've done this as a proactive measure to limit my tax liability should I return to the UK. It's my insurance policy against higher rate tax.

- Now that the bulk of the distribution has been made I will be applying for PR.

Finally, as should be obvious by now, being in state where you are resident for tax purposes but being a temporary resident of Oz at the same time can have some major tax advantage.

In a nutshell any income other than salary is not taxable in Australia - something to keep in mind should you have other assets in the UK.


EDIT: I'm not an accountant or a tax advisor - you need to check the information I've provided with a professional if you plan to use it.

[biztalk]

Thanks a ton for the informative response.
I am having an Oz perm residency and also an Indian nationality.
As you suggested, I must maximise my allowance, does that mean , I will be able to use the allowance of australia while drawing the funds from my limited company ?
Also, I have got the residency, but haven't activated it yet. by this I mean, I need to go to Australia before end of this year to activate my PR.
In terms of returning to UK, I doubt I will be coming back in 5 years or ever...
So , Can you please suggest me what you think will be the best option for me ?
Appreciate you response on this

I've not read all the replies but I'm in the same boat as you; I'm in Oz and have been for the last 18 months. I've liquidated my company and received the first distribution a few days ago.

Things you need to consider.

1 - If you have a permanent residency visa (PR) in Australia then you will be taxed on all your worldwide income once you become a permanent resident so make sure you maximize your tax allowances before leaving. Your status as permanent resident/resident for tax purposes effectively kicks in the moment you enter Australia and depends on your visa.

2 - If you are on a 457/any other temporary workers visa you are only taxed on income from outside Australia earned as salary after you become a resident for tax purposes. If you don't already, you need to understand the difference between a permanent resident and a resident for tax purposes.

3 - If you have PR then any distribution made whilst you are a resident for tax purposes will be subject to capital gains in Australia. Effectively you would become resident for tax purposes the moment you arrive in Oz.

4 - If you are a temporary resident (457/working holiday etc) then any capital gain made whilst you are tax resident in Australia but not a permanent resident is not taxable in Australia.

5 - Now this bit you need to check, but, in a nutshell If you are outside the UK for 5 full tax years you will not be subject to CGT in the UK. Therefore, if you a non-tax resident of the UK and tax resident in Australia but not a permanent resident of Australia you can effectively take that cash tax free. However, if you have PR then the distribution will be taxed in Australia as a capital gain.

6 - If you go down the ER route, you can ask your accountant to make a protective claim for ER. The reason being that if you do decide to return to the UK inside the 5 year time frame but for some reason ER changes/is scrapped in the intervening years you can still claim ER as it was at the point in time the distribution/s were made.

7 - I'm not sure about this bit, but, I'm guessing that you could leave the UK and if coming to Australia as a temporary resident but resident for tax purposes then when you arrive you could issue a dividend for the remaining funds in the company and avoid the whole expense and time involved with an MVL.

I don't *think* you would be liable for tax in either country. Note that the 5 year rule applies however and if you return to the UK I believe you would be liable for tax at whatever rates (likely higher).


Just to give some context to how I've come to the above conclusions, my circumstances are:

- Currently non-tax resident of the UK.

- Sponsored visa (457)

- Temporary resident of Australia but resident for tax purposes due to my visa.

- Just finalised MVL. I've done this as a proactive measure to limit my tax liability should I return to the UK. It's my insurance policy against higher rate tax.

- Now that the bulk of the distribution has been made I will be applying for PR.

Finally, as should be obvious by now, being in state where you are resident for tax purposes but being a temporary resident of Oz at the same time can have some major tax advantage.

In a nutshell any income other than salary is not taxable in Australia - something to keep in mind should you have other assets in the UK.


EDIT: I'm not an accountant or a tax advisor - you need to check the information I've provided with a professional if you plan to use it.