Getting money out of Ltd co I'm leaving

[achillea]

Postscript

Just thought I'd let you know how I got on in relation to the two issues raised in this post, having discussed it with my accountant:

Different levels of dividends paid
As each director has a different class of ordinary share (alphabet shares) it is perfectly legal to issue different dividend amounts. If a director does not take a dividend then there is no need to issue a waiver. In a nutshell, we haven't been doing anything wrong these past 10 years.

Best way to take money out of company that I'm leaving
Best option is to transfer the share from OldCo to NewCo. Declare the dividend and move all of the money to NewCo (no tax implication as it is company to company). NewCo temporarily owns 50% of OldCo. Sell share back to OldCo at face value (£1). Money is now in NewCo cash reserves to be drawn on as and when. Sounds a much more tax efficient and simple way of doing it. Accountant is sorting out the company's house forms.

Thanks to those who provided constructive advice and a big two fingers in the air to those who assumed I was too tight to get advice (read the flaming post before making sarky and unhelpful comments!).

[ContrataxLtd]

Just thought I'd let you know how I got on in relation to the two issues raised in this post, having discussed it with my accountant:

Different levels of dividends paid
As each director has a different class of ordinary share (alphabet shares) it is perfectly legal to issue different dividend amounts. If a director does not take a dividend then there is no need to issue a waiver. In a nutshell, we haven't been doing anything wrong these past 10 years.

Best way to take money out of company that I'm leaving
Best option is to transfer the share from OldCo to NewCo. Declare the dividend and move all of the money to NewCo (no tax implication as it is company to company). NewCo temporarily owns 50% of OldCo. Sell share back to OldCo at face value (£1). Money is now in NewCo cash reserves to be drawn on as and when. Sounds a much more tax efficient and simple way of doing it. Accountant is sorting out the company's house forms.

Thanks to those who provided constructive advice and a big two fingers in the air to those who assumed I was too tight to get advice (read the flaming post before making sarky and unhelpful comments!).

Hi achillea

Thanks for providing an update on your situation.

In respect to the transferring of the shares around companies, all seems a little convoluted to me and possibly quite artificial (I'm thinking GAAR could come in to play) and not something I'd feel comfortable advising. I would possibly expect a capital gains tax charge to arise on the transfer of your share(s) to NewCo assuming you are the sole director/shareholder of NewCo and would be interested to hear your accountants way around this?

Martin
Contratax Ltd

[northernladuk]

Hi achillea

Thanks for providing an update on your situation.

In respect to the transferring of the shares around companies, all seems a little convoluted to me and possibly quite artificial (I'm thinking GAAR could come in to play) and not something I'd feel comfortable advising. I would possibly expect a capital gains tax charge to arise on the transfer of your share(s) to NewCo assuming you are the sole director/shareholder of NewCo and would be interested to hear your accountants way around this?

Martin
Contratax Ltd

+1 to that. I wouldn't be comfortable with this advice at all. The doing nothing wrong with Alphabet shares alone doesn't sound right and even if you haven't I am sure HMRC would like to come and have a look to satisfy themselves. Something you really don't want. The swapping companies bit is done for no other reason than to avoid tax so the only way you can get away with that is not to get caught. If you are happy with that then why not just empty the account without claiming anything.

[achillea]

Back to the drawing board then... will double check the reasoning and report back. I don't want to do anything that isn't above board.

[ContrataxLtd]

Back to the drawing board then... will double check the reasoning and report back. I don't want to do anything that isn't above board.

Let us know how you get on. In principle, I'd be fine with the A/B shares (to an extent) but it's just the getting money out of the company side which worry's me as you are entering into a string of transactions with the main aim to get a tax advantage out of and I personally don't see the string of transactions as being reasonable.

Martin
Contratax Ltd

[achillea]

Ref A&B shares, both my OldCo accountant and NewCo accountant see the arrangement as appropriate treatment. We both do different types of work (one interim, the other software sales/consultancy) and have different classes of shares to reflect that (albeit with same voting rights).

Ref money transfer I don't see it as avoiding tax as the money sits with the company and not me and I would still be paying the same amount of tax when I take dividends out of NewCo... I just don't personally want to withdraw all of the cash and would rather keep it in the company coffers...still, what do I know? At this rate I'll end up staying with the OldCo for a couple of years until I've drawn everything down.... not ideal but I'd rather do that than loose a big chunk in income tax or CGT.

I'll get the other accountant to also look into the proposal before making a move.

[ContrataxLtd]

Ref A&B shares, both my OldCo accountant and NewCo accountant see the arrangement as appropriate treatment. We both do different types of work (one interim, the other software sales/consultancy) and have different classes of shares to reflect that (albeit with same voting rights).

Ref money transfer I don't see it as avoiding tax as the money sits with the company and not me and I would still be paying the same amount of tax when I take dividends out of NewCo... I just don't personally want to withdraw all of the cash and would rather keep it in the company coffers...still, what do I know? At this rate I'll end up staying with the OldCo for a couple of years until I've drawn everything down.... not ideal but I'd rather do that than loose a big chunk in income tax or CGT.

I'll get the other accountant to also look into the proposal before making a move.

Hi Again

If you are happy taking the money as dividends over the next few years as opposed to capital now why don't you start up the new company and do what you want through that but also maintain a shareholding/directorship in the oldCo and draw dividends from there as/when fit until the pot runs dry so to speak?

Martin
Contratax Ltd

[TheFaQQer]

At this rate I'll end up staying with the OldCo for a couple of years until I've drawn everything down.... not ideal but I'd rather do that than loose a big chunk in income tax or CGT.

Why not set up the new company and start working through that, and take money out of the current company over the next few years as dividends as you need to?

If you keep working via the same company, then you are never going to resolve the issue - you'll keep putting money into that company and still be wondering how to get the money out.

[TheFaQQer]

Ref money transfer I don't see it as avoiding tax as the money sits with the company and not me and I would still be paying the same amount of tax when I take dividends out of NewCo... I just don't personally want to withdraw all of the cash and would rather keep it in the company coffers...still, what do I know? At this rate I'll end up staying with the OldCo for a couple of years until I've drawn everything down.... not ideal but I'd rather do that than loose a big chunk in income tax or CGT.

Do those two statements not contradict each other?

[TheCyclingProgrammer]

Personally I wouldn't be that worried about the alphabet shares as it sounds like a genuine and reasonable arrangement to me.

As several others have said, the share transfer between companies doesn't sound right to me. IANAA and I know your accountant has advised this but you've already got one accountant on here raising their eyebrows!

Out of interest (to anybody who knows the answer): I find it hard to believe that dividends received by a company that owns shares in another company aren't taxed in some way. We all know how dividends are taxed from an income POV but what happens when the shareholder is a corporation? It seems strange to me that you could transfer shares to NewCo (and as Martin says, even if you transfer them for nothing, you're likely to be assessed for CGT on the full market value of your shares) and then declare a dividend which NewCo receives tax free.

I appreciate you'll still get taxed the same whether you draw dividends from NewCo or OldCo and are just trying to find a tax efficient way of transferring your capital in the old business to the new one, but this doesn't seem right to me.