Applying for taper relief before April

[Old Greg]

Also if you close your business EVERY year, you'll benefit from the £9200 CGT allowance EVERY year and be keeping HMRC staff busy to boot

And presumably as Mrs OG has a share, she can use up her CGT allowance as well (until they put a stop to her having a share), doubling the saving. Or have I got something wrong there?

[max]

And presumably as Mrs OG has a share, she can use up her CGT allowance as well (until they put a stop to her having a share), doubling the saving. Or have I got something wrong there?

Nope..you are correct. You have to CGT allowances to use.

I forget...is the allowance being removed as part of the 18% CG change? IIRC indexation and taper are.

[Ruprect]

And presumably as Mrs OG has a share, she can use up her CGT allowance as well (until they put a stop to her having a share), doubling the saving. Or have I got something wrong there?

True, but as I understand it, it is discretionary on HMRC whether or not you are allowed to take the distribution as a capital gain or as a divi. Irregular shut-downs are usually allowed as a capital gain, if you do it every year then you might not get this.

[mace]

You'd still have nothing to lose

After April 2008:-

Paying out in dividends would cost me and the company:-
40% of £80k = £32k per year.

If on the other hand I closed my company every year, the calculation would be:-

20% of £80k (corporation tax) + 18% of £54800 (CGT on retained profit – CGT allowance after corporation tax) = £16k + £9864 = £25684

A saving of £6316 per year

If it costs £600 in fees and a bit of hassle closing your company down each year, you might make £6316 - 600 = £5716 per year (if HMRC decide you can take as capital gains) or lose £600 per year (if they decide you can only take it as divis. Obviously the 1st time they decide this you stop taking this approach from then on or appoint your wife/relative as a sole director). If you also make your wife a director, you could chance your arm that they'll not investigate and double the CGT allowance making even more savings. I think the HMRC could easily become a victim of unforeseen consequences.

[ChimpMaster]

Yes it is discretionary though in the past I hear it hasn't been much of a problem. My accountant told me of a contractor that got over 200k out this way a couple of years back!

However now that HMRC are screwing small businesses around again, they may start to get more selective who what they allow as a cap. gain and what they classify as a divi.

If I had a large amount in a ltd I would start the process ASAP.

[THEPUMA]

There is no need to wait for accounts etc to be completed before taking out the cash. The effective date for CGT purposes would usually be the date the cash is paid.

If you have time, I would probably apply for ESC C16 clearance before taking the money but that usually only takes a couple of weeks. If that would be likely to take me beyond 05/04/08 I would probably draw it anyway.

Closing down a company and restarting a new one is likely to be ineffective on the basis that ESC C16 is reliant upon the cessation of the trade. There may be other alternatives involving trusts etc but the fees are likely to be disproportionate to the savings unless residual cash is in the region of £150K or above.

[Lockhouse]

I think I may be actually be better off after April 2008. I own property through myco which I've had for ages. If I sell the property, pay the corporation tax on the profit, after April I can close the company, draw the whole lot out and only pay 18% of the total without it affecting my 40% banding or anything else - so I'll be quids in compared to paying it out as a divvi.

Does that sound about right?

[Ruprect]

There is no need to wait for accounts etc to be completed before taking out the cash. The effective date for CGT purposes would usually be the date the cash is paid.

If you have time, I would probably apply for ESC C16 clearance before taking the money but that usually only takes a couple of weeks. If that would be likely to take me beyond 05/04/08 I would probably draw it anyway.

Closing down a company and restarting a new one is likely to be ineffective on the basis that ESC C16 is reliant upon the cessation of the trade. There may be other alternatives involving trusts etc but the fees are likely to be disproportionate to the savings unless residual cash is in the region of £150K or above.

Isn't that a bit naughty?!

[THEPUMA]

Isn't that a bit naughty?!

No not at all. The risk is that for some reason HMRC do not grant the concession but if you are prepared to take that risk, it is perfectly above board.

[Ruprect]

No not at all. The risk is that for some reason HMRC do not grant the concession but if you are prepared to take that risk, it is perfectly above board.

And if they don't grant the concession then if has to be treated as a dividend and you have to pay the dividend tax instead - is that right? Also, what about the date issue? If it IS classed as the concession, but they respond after 05.04.08 then should the amount be subject to additional tax (because presumably the amount you distributed pre 05.04.08 had taper relief applied)?