Reply to: Can I avoid 7.5% Dividend Tax

[Maslins]

All that being said, haven't the government been consulting on ideas to prevent "money boxing"?

What's happening about 'money-boxing'? | Forbes Dawson

Nothing in place as yet, there may never be, but it's being looked at.

Yup, and realistically it'll be a growing "problem". With corporation tax rates falling and personal tax rates on dividends increasing, the tax system is encouraging people to make big corporate profits but not extract it. Ie moneyboxing, exactly the same thing they apparently want to stop.

Depressing thing is it leads me to anticipate another IR35-esque shambles. In the same way the tax system encouraged some employees to attempt to become contractors, so there was then a bodged bit of legislation to try to prevent it, there'll be the same thing here.

[TheCyclingProgrammer]

You can, it's just that the specifics of what constitutes avoidance have now been clarified, because there's a legislated timeframe (2 yrs). I say clarified, rather than completely clear, because it remains to be seen how the rules that apply within that 2yr period will be interpreted ("the same or similar trade or activity"). However, there's no question about the retirement scenario, for example. Other factors being equal, that applies now as it did before.

All that being said, haven't the government been consulting on ideas to prevent "money boxing"?

What's happening about 'money-boxing'? | Forbes Dawson

Nothing in place as yet, there may never be, but it's being looked at.

[Jessica@WhiteFieldTax]

You notify HMRC you are leaving the uk, and, in due course, get your Self Assessment account closed.

[Hobosapien]

If emigrating I presume with a permanent intention then if that occurred before the next self assessment was due would HMRC actively chase someone abroad for not completing it or just fine them the £100 late charge + any penalties they assume were due on their estimation of what tax they've not been paid?

So if not worth their trouble going cross border (should be small fry) then it only becomes an issue if you tried to come back into the UK for more than a holiday. I presume they wouldn't go as far as add you to the arrest on arrival list at UK border control. I'm sure loads of people have moved abroad and forgot about the next self assessment due, and maybe have got away with it or have had a nasty surprise depending on what the reality is.

The next self assessment is the first time this new divi tax has to be reported to HMRC and subsequently paid. Hopefully their online system caters for the new rules ok (taking off the £5k allowance) when calculating tax due when I click the submit button at 23:59 on January 31st as per.

[Fred Bloggs]

I'm starting to understand why NorthernLadUK gets upset with people not using the search functionality.

Anyway, if you are on a temporary visa in Australia (457 most likely) you are resident for tax purposes but not a permanent resident. In this scenario you pay no tax and do not need to declare any income earned outside of Australia except for salary.

If you are a permanent resident and a resident for tax purposes you pay tax on all income regardless of where it is earned.

So the answer to you question? It depends.

If you are going to be a non-UK tax resident for at least 5 complete years take the lot out as a dividend before you reach Australia and you won't pay anything - note I am not an accountant so check that out before you (if) you go down that road.

I went via an MVL in case I move back within 5 years as an insurance policy btw.

Yes, that pretty much nails it, I believe.

[Mister Clark]

I'm starting to understand why NorthernLadUK gets upset with people not using the search functionality.

Anyway, if you are on a temporary visa in Australia (457 most likely) you are resident for tax purposes but not a permanent resident. In this scenario you pay no tax and do not need to declare any income earned outside of Australia except for salary.

If you are a permanent resident and a resident for tax purposes you pay tax on all income regardless of where it is earned.

So the answer to you question? It depends.

If you are going to be a non-UK tax resident for at least 5 complete years take the lot out as a dividend before you reach Australia and you won't pay anything - note I am not an accountant so check that out before you (if) you go down that road.

I went via an MVL in case I move back within 5 years as an insurance policy btw.

[jamesbrown]

Company bosses rush to liquidate before tax loophole closes

"What has changed?

The tax authorities have clamped down on business owners winding up companies to access an even lower rate of tax on their cash. What they are now barred from doing is accessing “entrepreneurs’ relief”. This is a special, 10 per cent rate of tax that company owners get if they sell or close their companies. From April, this 10 per cent rate is only available to company owners who are liquidating for practical reasons, such as retiring or switching industries. Company owners who want to carry on in the same business during the two years after they liquidate their companies can no longer claim the entrepreneurs’ relief. "

Source: Company bosses rush to liquidate before tax loophole closes - FT.com

Will moving to Australia be classed as good practical reason? Who knows, HMRC will have on incentive to agree easily.

I expect them to just plain disallow it (CGT on cash reserves) soon - retiring or not, accumulated profit should be paid out as dividends with new higher rates, that's the view they are going to take given that they already promise to drop corp tax further.

On tax policy, as with all Gov't policy, you're better off reading the actual legislation rather than how it is reported in the press. These reporters generally don't know the details and it's telling that they refer to ER rather than to capital distributions more generally (i.e. they don't know what they're talking about). The changes were to the Transactions in Securities legislation; that's what you need to read. It has nothing to do with moving abroad, other than making an argument about tax not being a primary motivation within the two-year period. Bottom line, the only change is the 2yr period and, during this period, the requirement to not engage in the "same or similar trade or activity". As I said before, the retirement scenario is completely unchanged. Obviously, we can speculate on the future - I suspect you're right - but we can only objectively evaluate the current situation w/r to the OP.

[AtW]

Company bosses rush to liquidate before tax loophole closes

"What has changed?

The tax authorities have clamped down on business owners winding up companies to access an even lower rate of tax on their cash. What they are now barred from doing is accessing “entrepreneurs’ relief”. This is a special, 10 per cent rate of tax that company owners get if they sell or close their companies. From April, this 10 per cent rate is only available to company owners who are liquidating for practical reasons, such as retiring or switching industries. Company owners who want to carry on in the same business during the two years after they liquidate their companies can no longer claim the entrepreneurs’ relief. "

Source: Company bosses rush to liquidate before tax loophole closes - FT.com

Will moving to Australia be classed as good practical reason? Who knows, HMRC will have on incentive to agree easily.

I expect them to just plain disallow it (CGT on cash reserves) soon - retiring or not, accumulated profit should be paid out as dividends with new higher rates, that's the view they are going to take given that they already promise to drop corp tax further.

[jamesbrown]

Can't do it anymore - as in pay capital gain rates on accumulated cash.

You can, it's just that the specifics of what constitutes avoidance have now been clarified, because there's a legislated timeframe (2 yrs). I say clarified, rather than completely clear, because it remains to be seen how the rules that apply within that 2yr period will be interpreted ("the same or similar trade or activity"). However, there's no question about the retirement scenario, for example. Other factors being equal, that applies now as it did before.

[Maslins]

Can't do it anymore - as in pay capital gain rates on accumulated cash.

? Says who?

Yes the rules on someone closing down cash rich Oldco then doing the same trade via Newco have been tightened up...but if you're closing for good then CGT treatment is still available (subject to an MVL if >£25k net assets).

[AtW]

Why would you do that, when you can close the company down using an MVL and take the money out as a capital gain.....

Can't do it anymore - as in pay capital gain rates on accumulated cash.

[kaiser78]

I have taken some 'extra' dividend in FY 15/16 to account for the new div tax in 16/17.
Accountant did some number crunching and worked out this works out better in terms of overall tax liability for 16/17.

[jamesbrown]

Is there a flaw I've missed?

Potentially, yes. For example, if you return to the UK within 5 years, you'll be taxed on all dividends within that period at the prevailing rate during the year of your return.

You'll also have the ongoing accountancy costs and responsibilities as a company director. You may have these responsibilities in Australia too as a controlling person of an overseas corporation (most jurisdictions have these rules).

As I say, there's potentially quite a lot that you've missed. Laws change over time too. In this scenario, you're probably better off winding up and taking a capital distribution, assuming you can meet the conditions.

[Fred Bloggs]

The OP's post needs elaboration but it seems he is talking about moving to Oz regardless of any other factors, and possibly not working any more from that point. He can then draw down funds from his UK Ltd company up to the pertinent tax allowances - whether that is UK or Oz, depending on his tax/residency status at that time.

There may be a window of opportunity arising where the ATO will not tax overseas dividends. Hence the need for planning and professional advice.

[ChimpMaster]

The OP's post needs elaboration but it seems he is talking about moving to Oz regardless of any other factors, and possibly not working any more from that point. He can then draw down funds from his UK Ltd company up to the pertinent tax allowances - whether that is UK or Oz, depending on his tax/residency status at that time.