Getting money out of Ltd co I'm leaving

[achillea]

I am currently a joint director of a 10 year old Ltd company and am planning on leaving to set up my own Ltd. I have about £100k in the reserves and want to know the best way of getting the money out in the most tax efficient way.

I know I can't transfer the money to NewCo and have just dumped £30k into my SIPP as an employer contribution. I don't want to take all of the rest out as dividend as that will lead to a large tax liability. I would like to leave the company within the next 2-3 months and wondered if there is another way? Someone mentioned a possible share buy-back then I could take the lump sum and be liable to 10% CGT. This sounds like the best option if it is possible.

Is this correct and if so, how would it work?

Many thanks

[northernladuk]

Your accountant should be able to advise.

[TheCyclingProgrammer]

Your accountant should be able to advise.

This. You haven't given nearly enough information for anybody to know what the best solution is for your circumstances.

The *usual* route would be:

* Make pension contributions if you want to (optional)
* Make sure you've taken the maximum dividends possible without incurring any higher rate tax
* If the remainder is more than a certain amount (£25k I think) then you can begin a members voluntary liquidation. There are companies out there who offer this service at quite competitive prices if the liquidation is a basic one. The remaining funds will then be distributed to you as a capital distribution and if you're eligible for ER, then it will be taxed at 10%.

There are caveats to the above which is why you need to speak to your accountant. The usual ones are:

* Making sure you're actually eligible for ER. If you're not, you could end up with a CGT bill that is higher than if you just took dividends.
* Making sure you're not caught by transactions in securities rules. These can be complex but they normally apply where a company closes down, transfers all its assets (but not the cash) to the new company and continues trading as before. If your new company is completely unrelated to the old one, you should be OK but you need to check with your accountant. I'd still avoid transferring physical assets to the new company to be on the safe side. If the new company is doing something completely different then you probably won't have to worry about continuation of trade of transfer of goodwill/client base as an asset.
* Anything else I've missed?

Edit: completely missed that you are a *joint* director so this complicates things somewhat and much of the above is unlikely to be useful to you. Resigning as a director isn't a problem but as far as being a shareholder goes I assume you'll need to get the other shareholders to buy you out. IANAA.

[ContrataxLtd]

I am currently a joint director of a 10 year old Ltd company and am planning on leaving to set up my own Ltd. I have about £100k in the reserves and want to know the best way of getting the money out in the most tax efficient way.

I know I can't transfer the money to NewCo and have just dumped £30k into my SIPP as an employer contribution. I don't want to take all of the rest out as dividend as that will lead to a large tax liability. I would like to leave the company within the next 2-3 months and wondered if there is another way? Someone mentioned a possible share buy-back then I could take the lump sum and be liable to 10% CGT. This sounds like the best option if it is possible.

Is this correct and if so, how would it work?

Many thanks

Hi Achillea

Definitely worth a chat with your accountant on this one. A buy back of shares out of reserves could well be an option and open the door to 10% CGT, but there are various criteria to be met and a strict process to go through to get the capital gains treatment. I am also assuming that the other director is going to want to carry on this business so an MVL isn't an option.

Expect to pay for some decent advice on this but it could well save you a lot of money in tax!

Hope this helps

Martin
Contratax Ltd

[TheFaQQer]

The *usual* route would be:

* Make pension contributions if you want to (optional)
* Make sure you've taken the maximum dividends possible without incurring any higher rate tax
* If the remainder is more than a certain amount (£25k I think) then you can begin a members voluntary liquidation. There are companies out there who offer this service at quite competitive prices if the liquidation is a basic one. The remaining funds will then be distributed to you as a capital distribution and if you're eligible for ER, then it will be taxed at 10%.

That works fine unless the joint director doesn't want to shut the company down at the same time, and / or doesn't want to pay out a dividend at the same time. Additional complexity if the shares are split in a non 50:50 split since someone can dictate what is going to happen.

[TheCyclingProgrammer]

That works fine unless the joint director doesn't want to shut the company down at the same time, and / or doesn't want to pay out a dividend at the same time. Additional complexity if the shares are split in a non 50:50 split since someone can dictate what is going to happen.

You're right; I completely missed the word joint in the OP. All the more reason why he needs to speak to an accountant.

[Pondlife]

That works fine unless the joint director doesn't want to shut the company down at the same time, and / or doesn't want to pay out a dividend at the same time. Additional complexity if the shares are split in a non 50:50 split since someone can dictate what is going to happen.

WFS.

Also, how much say did the other director have in that 30K you dumped in your SIPP?

[TykeMerc]

Definitely a case for professional advice, it needs to be handled right.

[achillea]

Thanks

Thanks for the comments.

I am waiting to talk to my accountant but they are not currently available which is why I thought I'd solicit other views to get the ball rolling on options.

My partner will want to keep the current business so liquidation not an option. I shall be setting up NewCo providing the same services as before.

In theory we have one share each but we have separate profit centres (my revenue and expenses are separate so we know exactly how much is in each pot for distribution). I would want to take out everything that is left from my pot which wouldn't be 50% (more like 90%).

I've taken out some of it in pension contribution but don't want to put any more in just now. I can take more out in dividend but maybe a buy-out with CGT/entrepreneurs relief would be a better or valid option (accountant to clarify). If I took it all out as divi it would amount to about £80k so rather a large sum.

I could keep chipping away at it over the next few years but I'd rather have a clean break.

[ContrataxLtd]

Thanks for the comments.

I am waiting to talk to my accountant but they are not currently available which is why I thought I'd solicit other views to get the ball rolling on options.

My partner will want to keep the current business so liquidation not an option. I shall be setting up NewCo providing the same services as before.

In theory we have one share each but we have separate profit centres (my revenue and expenses are separate so we know exactly how much is in each pot for distribution). I would want to take out everything that is left from my pot which wouldn't be 50% (more like 90%).

I've taken out some of it in pension contribution but don't want to put any more in just now. I can take more out in dividend but maybe a buy-out with CGT/entrepreneurs relief would be a better or valid option (accountant to clarify). If I took it all out as divi it would amount to about £80k so rather a large sum.

I could keep chipping away at it over the next few years but I'd rather have a clean break.

Sounds like the buy back out of reserves would be the way to go and I'm sure your accountant will be able to explain all the options in detail when he becomes available. Just a word of warning, for a buy back to be capital it needs to be for the purpose of trade and not just to give you a lower tax rate. Normally these things occur when the two director's fall out and can't agree on how to push the business forward and as such the buy back is done to enable to business to continue trading with the sole director.

PM me if you need any further details on this area specifically around your circumstances.

Martin
Contratax Ltd