Extract Capital as Entrepreneur's Relief - Advice

[Hisco1954]

Hi,


I'm shutting down my ltd. company after moving into full term employment. There is around 60k distributable profit in the business, and I'd like to exit this with entrepreneurs relief (@ 10% capital gains, so assume 54k net).

When do I take this 60K out of the business, and what do I select in Freeagent as the option for this funds removal? My account is saying I need to take 35k out now as dividends, to get my retained profits down to 25k (If I wanted to take all 60k out on cessation date, I need a liquidator to help action. This all feels a bit wrong to me, hence welcome any guidance.

If I'm right, once the 60k is out of the company, I need to list this capital as "capital gains - entrepreneurs relief" in my and my wife's self assessment in the next relevant year, to ensure this only gets the 10% capital gains tax? My account wants to

Many thanks
Rob

[Alchemy Accountancy]

Hi,


I'm shutting down my ltd. company after moving into full term employment. There is around 60k distributable profit in the business, and I'd like to exit this with entrepreneurs relief (@ 10% capital gains, so assume 54k net).

When do I take this 60K out of the business, and what do I select in Freeagent as the option for this funds removal? My account is saying I need to take 35k out now as dividends, to get my retained profits down to 25k (If I wanted to take all 60k out on cessation date, I need a liquidator to help action. This all feels a bit wrong to me, hence welcome any guidance.

If I'm right, once the 60k is out of the company, I need to list this capital as "capital gains - entrepreneurs relief" in my and my wife's self assessment in the next relevant year, to ensure this only gets the 10% capital gains tax? My account wants to

Many thanks
Rob

You do not need to take a £25k dividend - you have the option of either doing that and closing the company yourself (with a maximum of £25k as capital) or appointing a liquidator so that the entire £60k is treated as capital.

Assuming that the permanent role, plus whatever dividends that you have taken already put you into the higher rate band - the tax saving of accessing the funds as capital (instead of taking as a dividend) should more than outweigh the cost of appointing a liquidator - your accountant will be able to do this calculation for you.

[Maslins]

I think you've got a few things confused here.

Taking £35k dividends now would lead to those being taxed on you as dividends not capital gains (so not 10%, could be 7.5% could be 32.5%, possibly higher depending upon your other income).

If you want the whole £60k to be CGT, you need a formal liquidation. We have a sister company MVL Online which does these relatively affordably.

If you go for a liquidation, you don't take any money out now, you need to leave it all in the company. Once you've appointed the liquidator, they then legally control your company. As part of that they'll write to your company's bank, requesting they close the account and transfer funds to the liquidator, who can in turn distribute onwards to you. It can be a bit of a long winded process, but it's required to get the £60k all as CGT.

[craigy1874]

Hi,


I'm shutting down my ltd. company after moving into full term employment. There is around 60k distributable profit in the business, and I'd like to exit this with entrepreneurs relief (@ 10% capital gains, so assume 54k net).

When do I take this 60K out of the business, and what do I select in Freeagent as the option for this funds removal? My account is saying I need to take 35k out now as dividends, to get my retained profits down to 25k (If I wanted to take all 60k out on cessation date, I need a liquidator to help action. This all feels a bit wrong to me, hence welcome any guidance.

If I'm right, once the 60k is out of the company, I need to list this capital as "capital gains - entrepreneurs relief" in my and my wife's self assessment in the next relevant year, to ensure this only gets the 10% capital gains tax? My account wants to

Many thanks
Rob

Don't you have an accountant you can discuss this with?

Also, you cannot declare dividends to reduce your reserves to < £25k and then distribute that as a capital distribution and claim ER. There are rules against that.

So in my eyes your only option is appointing a liquidator and going down the MVL route.

[craigy1874]

You do not need to take a £25k dividend - you have the option of either doing that and closing the company yourself (with a maximum of £25k as capital) or appointing a liquidator so that the entire £60k is treated as capital.

Sorry but I completely disagree with this.

[Alchemy Accountancy]

Sorry but I completely disagree with this.

You are correct - re-reading the OP, they have already started full time employment, so presumably the company will have ceased to trade and any distributions will be deemed part of the winding up. My original post would only be valid if the company had not yet ceased to trade.

[Hisco1954]

Thanks all - this is extremely helpful advice. I'll be kicking off the liquidation process with all the funds remaining in the business, per the below.

@ Maslins - I'll PM you regarding using MVOnline.

@ craigy1874 - re: an Accountant - I do, but they were bought out a few weeks ago and since then they've gone from hero to zero. I've finally got some engagement, but they haven't been all that consistent with their advice and have gone back and forth, hence I'd lost trust in their recommendation.

[cojak]

Just to say that I’m using MVLOnline and am very happy with them.