Reply to: The end of ER?

[JohntheBike]

When you close down a company, any shareholder funds left after final dividend distributions are distributed as capital. Assuming the shareholders paid a nominal amount for their shares (£1) and the company has reserved profits, they have made a capital gain personally, subject to CGT. Yes, you have a separate allowance for capital gains - around £12k IIRC. The rate of CGT you pay depends on whether or not you are eligible for ER or if not, whether or not you are a basic rate payer.

thanks for the explanation. Perhaps I've never consciously considered it as MyCo is unlikely to have such funds to distribute which would use up the allowance. But I guess any actual liability will be explained to me when I do actually close my company.

[ContractorBanking]

No idea but I would have thought an emergency budget would only happen once Brexit is known

[MrC]

If Government/HMRC want to get of ER then it will become effective immediately so as to prevent anyone taking advantage (in their eyes) of ER.

Resurecting this not-so-old thread.
Interested to know peoples thoughts and speculations on when an end might take place given the current political situation, if it were to.
Apreciate there are no certainties but trying to plan around risks with this route as best as possible.

I would have thought that it would come under budget change. Thus an April budget change most likely. But presumably we could have a post-election /brexit emeregency budget before then although not sure that it would feature highly on that adgenda. A political pundit i am not though so interested on others views.

edit- just noticed this came up on another thread so will repost there.

[TheCyclingProgrammer]

How is CGT tax linked to closing down a company? I understand how CGT works when profits are made based on purchase v's selling price, but even then isn't there an allowance?

When you close down a company, any shareholder funds left after final dividend distributions are distributed as capital. Assuming the shareholders paid a nominal amount for their shares (£1) and the company has reserved profits, they have made a capital gain personally, subject to CGT. Yes, you have a separate allowance for capital gains - around £12k IIRC. The rate of CGT you pay depends on whether or not you are eligible for ER or if not, whether or not you are a basic rate payer.

[WordIsBond]

How is CGT tax linked to closing down a company? I understand how CGT works when profits are made based on purchase v's selling price, but even then isn't there an allowance?

Google MVL and Entrepreneur's Relief.

[JohntheBike]

If Government/HMRC want to get of ER then it will become effective immediately so as to prevent anyone taking advantage (in their eyes) of ER.

In any case, the upshot is that you will probably still be able to MVL but there won't be any claim for ER, which means that you will be liable to the usual CGT rates. This will be 20% for most people rather than 10% under ER.

How is CGT tax linked to closing down a company? I understand how CGT works when profits are made based on purchase v's selling price, but even then isn't there an allowance?

[WordIsBond]

No

More than 99% of Brits would be smiling delightedly and jumping up and down to be in your position. FWIW.

[yMyjgT]

Is there a decimal point?

No

[ChimpMaster]

Sounds like there’s still an opportunity to plan around this accordingly, eg make sure you don’t take enough dividends to push you into the higher rate and try and time it for the end of the tax year?

Nope. It used to be that the entire Gain was charged at only your marginal rate of tax, but a few years ago HMRC changed it so that you add it to your total income for that FY and then pay either 10% if you are a basic rate tax payer or 20% if higher rate (with the Gain added to your income).

Typical of HMRC to complicate things as much as possible.

[TheCyclingProgrammer]

Yes, but I imagine the typical person going through an MVL will either:
1) have already taken divis up to top of basic rate band (as 7.5% rather than 10%), and/or
2) is going into a high paid permie/umbrella role, so will eat up basic rate band there.

Sounds like there’s still an opportunity to plan around this accordingly, eg make sure you don’t take enough dividends to push you into the higher rate and try and time it for the end of the tax year?

[Paralytic]

It would be so frustrating to be "just miss out". An additional 10% would mean 5 figures extra tax for me, and the first figure isn't a 1

Is there a decimal point?

[Maslins]

I thought the normal CGT rate for basic rate tax payers is 10%?

Yes, but I imagine the typical person going through an MVL will either:
1) have already taken divis up to top of basic rate band (as 7.5% rather than 10%), and/or
2) is going into a high paid permie/umbrella role, so will eat up basic rate band there.

[yMyjgT]

you will probably still be able to MVL but there won't be any claim for ER, which means that you will be liable to the usual CGT rates. This will be 20% for most people rather than 10% under ER.

It would be so frustrating to be "just miss out". An additional 10% would mean 5 figures extra tax for me, and the first figure isn't a 1

[TheCyclingProgrammer]

I thought the normal CGT rate for basic rate tax payers is 10%?

[ChimpMaster]

If Government/HMRC want to get of ER then it will become effective immediately so as to prevent anyone taking advantage (in their eyes) of ER.

In any case, the upshot is that you will probably still be able to MVL but there won't be any claim for ER, which means that you will be liable to the usual CGT rates. This will be 20% for most people rather than 10% under ER.