If you'll have negligible income over the next few tax years, then yes, drip feeding dividends can be the most tax efficient option.
Carrying back losses (eg from salary when no income) as suggested can only really be done one year.
If you think you will be doing other work, depends what you anticipate earning. If it'll be modest sums (eg £10k/year for part time) then I'd still go with the drip feed dividend approach. If it'll be more like £40k, then you'd be probably be paying 25% personal tax on any dividends, so close down would likely be the more tax efficient option.
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Reply to: Drawing cash down before retirement
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Previously on "Drawing cash down before retirement"
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Ok, thanks for your responses.
So it would be more tax efficient to draw money down over a number of years via dividends over a number of years rather than closing down the company and drawing the money out and taking the entrepreneur relief route. I could also just do semi-retirement, work a month a year and still take advantage of my personal income allowance while drawing down the rest of the cash built up as dividends.
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Originally posted by TheCyclingProgrammer View PostAbove poster is wrong. You can carry back a loss.
However, if this comes under scrutiny, how could you justify paying a salary if you aren't working or actively trading? It seems to me that HMRC could challenge the salary as not being wholly and exclusively for business purposes (there is no business!).
Maybe it's unlikely and purely a hypothetical risk but something to consider.
Personally I'd just keep paying dividends up to the higher rate or liquidate if you need access to the funds more quickly - depending on how much we are talking about, taking the 10% tax hit might be worth it if you want to do something with the money.
so year 1, pay salary I effect tax free if staying in basic rate. Actually tax positive to the tune of 2k if no other usage of allowances.
year 2 onwards, pay salary to such points as there are decutions for the management fee of managing the companys accounts. No ability to reclaim from previous ct but there is some some offset due to the corporate income from its assets.
just paying dividends, if still a basic rate payere is not a bad way of running down to the de minimis limit to avoid costs of formal liquidation.Last edited by ASB; 20 September 2014, 14:08.
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Above poster is wrong. You can carry back a loss.
However, if this comes under scrutiny, how could you justify paying a salary if you aren't working or actively trading? It seems to me that HMRC could challenge the salary as not being wholly and exclusively for business purposes (there is no business!).
Maybe it's unlikely and purely a hypothetical risk but something to consider.
Personally I'd just keep paying dividends up to the higher rate or liquidate if you need access to the funds more quickly - depending on how much we are talking about, taking the 10% tax hit might be worth it if you want to do something with the money.
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If you make a profit the company pay corp tax end of story on the profit. The company cannot get it back due to losing money in the future.
If you have room in your SIPP ie less than 40K a year input then put it there but as you infer there may be no room.
Remember you may well pay PAYE on the way out of the pension.
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I am already filling a SIPP, passively invested, with a sizeable amount each year and by the time I reach 55 this should provide me with my required income (or part there of, supplemented by an ISA and other investments) from that age onwards. I am thinking about how I survive up until 55 as I am hoping to be financially independent at 45 and my other investments will not be able to maintain me between 45 and 55.
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Originally posted by rjustice View PostHi,
Looking forward to retirement - I am thinking of building a large amount of cash in my company and slowly running it down by paying myself £30k (£15k salary, 15k dividends) a year for say 5 years. During this time I would not be working and would have no other income. Would I be able to claim back the corporation tax I paid while building the sum in my company by claiming it against the salary I take over the course of the proceeding 5 years?
I understand I could just liquidate the company and gain entrepreneurs tax relief as an alternative but just thought this might be more tax efficient.
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Drawing cash down before retirement
Hi,
Looking forward to retirement - I am thinking of building a large amount of cash in my company and slowly running it down by paying myself £30k (£15k salary, 15k dividends) a year for say 5 years. During this time I would not be working and would have no other income. Would I be able to claim back the corporation tax I paid while building the sum in my company by claiming it against the salary I take over the course of the proceeding 5 years?
I understand I could just liquidate the company and gain entrepreneurs tax relief as an alternative but just thought this might be more tax efficient.Tags: None
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