Reply to: Leaving cash in ltd business long term

[Lance]

Well I'd be paying 5k up front if I close the business in ER. So I either (Very rough figures obviously and yep not factoring inflation):
* Take it out, pay 5k upfront. 45k remains. At 2% pa from offset/investment whatever: after 3 years approx 47,500k.
* Leave it in. 50k - ~1k pa in costs over 3 years = 47k.

So definitely not worth it if timeframe over 3 years. Less than 3 years it might be, but there's not much in it.
Meh, I think I'll just close up shop.

do you sums.....

£50k in co

allowed £12k before CGT kicks in.
10% of the remainder is £3800 in CGT. But you still need to pay for the insolvency.

Stop doing back of a fag packet numbers. You cannot make a proper comparison like this.

[northernladuk]

Thanks for the reply. I was thinking of dropping the accountant and insurance policies straight away, as there will likely be no turnover while I'm a permie and I've timed the switchover to end neatly with this tax year. If I did lose the permie role I'd get them back again pronto of course. I'll look into the other costs as you suggest. Ta.

You will still need to keep the policies going for a reasonable time period incase anything pops up and you are gonna need your accountant at some point in the future so I'd discuss a holding rate or something with them rather than just drop them.

So definitely not worth it if timeframe over 3 years. Less than 3 years it might be, but there's not much in it.
Meh, I think I'll just close up shop.

IMO that's probably the best but gen yourself up with your saving/investing options. Offset mortgages have been around for decades.

[spoovy]

with those fees, and any accountancy needed you're getting into a 4 figure sum annually. This is at least 2% (and growing as the value decreases). This is a very high fee to pay if you compare against a management fee for an investment. And this isn't going to grow.
And inflation hasn't been considered.
You say long term? But long term for this is madness. Maybe 2/3 years at the most.

Perhaps it's best just to take the money and stick it into a savings fund/offset/gold.

Well I'd be paying 5k up front if I close the business in ER. So I either (Very rough figures obviously and yep not factoring inflation):
* Take it out, pay 5k upfront. 45k remains. At 2% pa from offset/investment whatever: after 3 years approx 47,500k.
* Leave it in. 50k - ~1k pa in costs over 3 years = 47k.

So definitely not worth it if timeframe over 3 years. Less than 3 years it might be, but there's not much in it.
Meh, I think I'll just close up shop.

[Lance]

Thanks, I was thinking of keeping the IR35 insurance, but I hadn't considered PI. I will keep that too.

with those fees, and any accountancy needed you're getting into a 4 figure sum annually. This is at least 2% (and growing as the value decreases). This is a very high fee to pay if you compare against a management fee for an investment. And this isn't going to grow.
And inflation hasn't been considered.
You say long term? But long term for this is madness. Maybe 2/3 years at the most.

Perhaps it's best just to take the money and stick it into a savings fund/offset/gold.

[spoovy]

I'd keep the professional indemnity insurance for a year after your last contract ends, just in case. If you have any niggling doubts over the IR35 status of any of your contracts, you may want to keep investigation cover in place as queries can come in 6 years later and HMRC can go back further if they smell a rat.

Thanks, I was thinking of keeping the IR35 insurance, but I hadn't considered PI. I will keep that too.

[ladymuck]

Thanks for the reply. So what's the savvy way to do it?

No right or wrong answer there. How much can you do yourself / how much does your accountant do for you? With very few transactions going through the company you may want to negotiate a lower fee for you doing more of the work if you're not confident in doing it all yourself.

If you're going to keep drawing funds out as dividend, you'll need to make sure you have retained profit to keep them legal. If the company is making a loss due to no revenue but ongoing costs (see insurance above, etc) then you'll want to claim a CT rebate.

[ladymuck]

Thanks for the reply. I was thinking of dropping the accountant and insurance policies straight away, as there will likely be no turnover while I'm a permie and I've timed the switchover to end neatly with this tax year. If I did lose the permie role I'd get them back again pronto of course. I'll look into the other costs as you suggest. Ta.

I'd keep the professional indemnity insurance for a year after your last contract ends, just in case. If you have any niggling doubts over the IR35 status of any of your contracts, you may want to keep investigation cover in place as queries can come in 6 years later and HMRC can go back further if they smell a rat.

[ShandyDrinker]

Thanks I will consult the accountant; just asking the experienced bods on here too.

I don't see how ER reductions and/or CGT increases would affect me if I stuck to my plan though? Granted I would still have to take the cash out at some point, but if all went well over the next few years I'd pay the remaining cash (I'd still be taking tax-free dividend allowance out each year) into a pension fund at whatever rate at the time incurred 0% tax.

Like when the dividend tax was first introduced, even if you say the ER/CGT changes won't affect you, I can guarantee that dividend changes will. The allowance might be at £2k and 7.5% now at the lowest levels, but as they've been in place for a few years now, who is to say they won't change these again?

Remember when the Tories said they won't increase income taxes and thus proceeded to effectively tax dividends more?

As others have mentioned, if you haven't hit the thresholds on pension contributions and already have a SIPP in place, I'd put as much into the SIPP as possible, probably being the most tax efficient way of extracting the money although granted can't be spent right now.

[spoovy]

If savvy, the costs shouldn't be too high and could be considered akin to management fees one pays on pensions and investments (if you don't do them yourself). Good call out though as those costs will chip away at the remaining capital.

Thanks for the reply. So what's the savvy way to do it?

[spoovy]

yes you could leave it for a few years and extract slowly. Don't forget £2k a year of tax free dividends as well.
But have you factored in the costs of servicing a LTD company? It's not free. It's not expensive either but is part of the equation you should consider.

Thanks for the reply. I was thinking of dropping the accountant and insurance policies straight away, as there will likely be no turnover while I'm a permie and I've timed the switchover to end neatly with this tax year. If I did lose the permie role I'd get them back again pronto of course. I'll look into the other costs as you suggest. Ta.

[ladymuck]

yes you could leave it for a few years and extract slowly. Don't forget £2k a year of tax free dividends as well.
But have you factored in the costs of servicing a LTD company? It's not free. It's not expensive either but is part of the equation you should consider.

If savvy, the costs shouldn't be too high and could be considered akin to management fees one pays on pensions and investments (if you don't do them yourself). Good call out though as those costs will chip away at the remaining capital.

[Lance]

Thanks I will consult the accountant; just asking the experienced bods on here too.

I don't see how ER reductions and/or CGT increases would affect me if I stuck to my plan though? Granted I would still have to take the cash out at some point, but if all went well over the next few years I'd pay the remaining cash (I'd still be taking tax-free dividend allowance out each year) into a pension fund at whatever rate at the time incurred 0% tax.

yes you could leave it for a few years and extract slowly. Don't forget £2k a year of tax free dividends as well.
But have you factored in the costs of servicing a LTD company? It's not free. It's not expensive either but is part of the equation you should consider.

[spoovy]

You probably need to take advice from your accountant, if you have one.

If it were me, I'd be getting any money out of the business sharpish before they change/scrap ER and/or increase CGT in the March budget.

Thanks I will consult the accountant; just asking the experienced bods on here too.

I don't see how ER reductions and/or CGT increases would affect me if I stuck to my plan though? Granted I would still have to take the cash out at some point, but if all went well over the next few years I'd pay the remaining cash (I'd still be taking tax-free dividend allowance out each year) into a pension fund at whatever rate at the time incurred 0% tax.

[spoovy]

Sounds like your money management is the problem. Burning a hole in your pocket or locked up are not the only two options available and are probably the worst as well.

What about getting an offset mortgage using the 50k. If you are worried about a large mortgage then offsetting means your payments will be lower and you get to keep the 50k without locking it up.

Thanks I wasn't aware of offset mortgages, I'll definitely look into that as depending on the mortgage rate I get that could even match the tax liabilities from ER over five years ish.

[northernladuk]

Sounds like your money management is the problem. Burning a hole in your pocket or locked up are not the only two options available and are probably the worst as well.

What about getting an offset mortgage using the 50k. If you are worried about a large mortgage then offsetting means your payments will be lower and you get to keep the 50k without locking it up.