MVL and ER - Substantial Cash in the company

[awll25]

Chris Maslin is a regular contributor here and MVL Online gets good reviews. I’m sure he can provide some guidance, but it’s ultimately your call and they will deal with the practical aspects rather than detailed tax advice. FWIW, I doubt you will have an issue based on the few things you have posted here. Certainly, the amount shouldn’t be a problem.

Thanks James. Yeh Chris seems to be a reasonable guy. Hope he can provide his view on this.

Thanks for your personal view, it’s valuable. Appreciate it. Yes in 2 minds really, one is with a higher risk (MVL) where they could even open an investigation or alternative is to pay up.

Also I’m not sure if I can keep the company open for say 5 years and drain it out at 150k / year as an alternative to save abit of tax. The country I’m going to has no dividend tax I believe. The problem then might be it will have no trading activity for 5 years but just drawdown. Could also raise red flags.

[awll25]

Do you have an active UK pension you could put (up to) £160K into? You'd obviously then have to see how that might transfer abroad with you too, but it could reduce some of the tax bill.

Unfortunately no, so not possible to take the last 3 years of pension.

[jamesbrown]

Thanks James. Yeh Chris seems to be a reasonable guy. Hope he can provide his view on this.

Thanks for your personal view, it’s valuable. Appreciate it. Yes in 2 minds really, one is with a higher risk (MVL) where they could even open an investigation or alternative is to pay up.

Also I’m not sure if I can keep the company open for say 5 years and drain it out at 150k / year as an alternative to save abit of tax. The country I’m going to has no dividend tax I believe. The problem then might be it will have no trading activity for 5 years but just drawdown. Could also raise red flags.

If there’s no dividend tax where you’re going, that might be a better route (no need to draw down gradually; if there’s no tax, there’s no tax), assuming that a) you are not UK tax resident at the time and b) you won’t become UK tax resident again for 5 years. The latter is important since this money was originally earned in the UK, so you could become liable to tax on the full amount in the year you return. Otherwise, I don’t see any red flags. Tax residency is a matter of fact.

[awll25]

If there’s no dividend tax where you’re going, that might be a better route (no need to draw down gradually; if there’s no tax, there’s no tax), assuming that a) you are not UK tax resident at the time and b) you won’t become UK tax resident again for 5 years. The latter is important since this money was originally earned in the UK, so you could become liable to tax on the full amount in the year you return. Otherwise, I don’t see any red flags. Tax residency is a matter of fact.

Well there is zero income tax for foreign income in the country. But since the income was generated in the U.K., are they not subject to tax even if you’re non resident in the U.K.

[jamesbrown]

Well there is zero income tax for foreign income in the country. But since the income was generated in the U.K., are they not subject to tax even if you’re non resident in the U.K.

But it wouldn’t be foreign income if you were tax resident there. If you’re not UK tax resident, then you’re not subject to UK tax, including dividend tax, but there are anti-avoidance provisions, as I alluded to. Anyway, I would strongly advise that you speak to an international tax specialist first, followed by a UK tax specialist w/r to any capital distribution while UK tax resident if you go down that route.

[ChimpMaster]

I don't think you will have any issues with regards to money boxing. It's just HMRC trying to make their "ideas of rules" seem like reality.

I'm quite interested in what Maslins will have to say about the size of the retained funds and whether this makes a difference to the MVL and claim for ER. I am pretty sure it doesn't make a difference technically, but the question is whether HMRC pay more interest to the liquidation request because of the potential tax saving you're getting.

I'm also impressed that you've built up a sizeable warchest in less than 5 years! That would imply a constant run rate of around £1.2k each day for the past 4.5 years, before paying CT, salary, dividends. Very well done.

[Maslins]

Agree with most of what jamesbrown has said in this thread.

If you are indeed going to a country where there's zero tax on dividends (do triple check this as you misunderstanding things here could be a very expensive mistake to make), then potentially you could forget the MVL, just take all as dividends once you're confident your tax residency is the new place. You do also need to ensure you don't return to the UK for >5 years.

Otherwise, an MVL likely could be a good option for you. Whilst I agree the deliberate investments aren't going to help your case with regards to ER, it sounds like it's only ~10% of your assets, and income from it has been trivial. Also I'm assuming there's been negligible expenditure directly related to it, nor have you spent that much time on the investment side (relative to trading). Therefore on balance you're likely to still pass the majority of the 20% tests.

The reality is pretty much every single ex contracting company going through MVL Online will have had a cash balance well in excess of their working capital needs. Ie even if just sitting in a deposit account, it could be considered an investment asset rather than a trading one. However, that still means whilst maybe one of the 20% tests is failed, the others are almost always still passed with flying colours. See here for further info on that.

[craigy1874]

Just be careful on dates, dividends will still be taxable in the UK in a split year, so you need to make sure you declare them in a year you are fully non-resident in the UK.

[ChimpMaster]

Maslins/Chris, what about the large amount of funds in his case? Would that be subject to or the cause of additional scrutiny from HMRC?

[jamesbrown]

Just be careful on dates, dividends will still be taxable in the UK in a split year, so you need to make sure you declare them in a year you are fully non-resident in the UK.

Right, need to be super careful with this and with the temporary non-residence rules if going down this route. As Chris notes above, any mistake here could be expensive.