Reply to: Taper relief withdrawn

[max]

Yes but the tax has gone down from 40% to 18%!

Yes but, there no indexation etc etc, so possibly results in a tax hike also.

I could be wrong.

[Hiram King Of Tyre]

You'll still pay CGT when you sell though.

Yes but the tax has gone down from 40% to 18%!

[TheFaQQer]

So did I before!! my tax liability has almost doubled.... should have bought a buy to let

You'll still pay CGT when you sell though.

[Hiram King Of Tyre]

yes. AIM shareholders will be hit as you describe. But dont forget you have a 9k allowance to use up first before any tax is due.

So did I before!! my tax liability has almost doubled.... should have bought a buy to let

[Pickle2]

Do does this mean that if you buy AIM shares and keep them for 2 yrs and then make a £1000 profit, the tax changes from £100 to £180?

yes. AIM shareholders will be hit as you describe. But dont forget you have a 9k allowance to use up first before any tax is due.

[Hiram King Of Tyre]

Do does this mean that if you buy AIM shares and keep them for 2 yrs and then make a £1000 profit, the tax changes from £100 to £180?

[adder]

Yes, that is what I meant. The corporation tax is irrelevant, because it is exactly the same whether you take money as dividends or capital gain. For money which is destined to saved rather than spent, I regard paying any CGT at all as tax inefficient, because there's an alternative route to getting money out of the company that will cost me nothing extra.

Any chance of sharing this alternative route that costs nothing extra?
TIA!

[IR35 Avoider]

But the company has already paid full CT on it. What you really mean is you personally will pay no extra income tax on it which is a different thing.

Yes, that is what I meant. The corporation tax is irrelevant, because it is exactly the same whether you take money as dividends or capital gain. For money which is destined to saved rather than spent, I regard paying any CGT at all as tax inefficient, because there's an alternative route to getting money out of the company that will cost me nothing extra.

[dude69]

I never knew owning a Ltd. co would be so damn complex.

I must say I have a LOT of cash and some assets in the assets in the company...some of them being loans. I know I know, slap on the hand.
Should I take out a £30K divi and clear most of the cash out now?

Loans should be kept below £5k and repaid in same year, except possibly season ticket loans.

You can retrospectively regularize them using a backdated dividend declaration.

It is sensible to pay a £30k dividend (treated as £33.33k income of course, because of the 10% tax credit) as early as possible in the tax year (assuming you have sufficient retained profit), because the money is better in your hands than the company's.

Does mean that any further dividends in the year will attract higher rate income tax.

[lilelvis2000]

I never knew owning a Ltd. co would be so damn complex.

I must say I have a LOT of cash and some assets in the assets in the company...some of them being loans. I know I know, slap on the hand.
Should I take out a £30K divi and clear most of the cash out now?

[minstrel]

18% is better than dividends. Rough guesstimate 1/2 of you'd pay if you take as dividends.

Remember the 18% is on top of the corporation tax (which is rising to 22%) your company has already paid.

So, with £100k profit capital distribution route would be £100k - 22% (CT) = £78k capital distribution which is then taxed at 18% which gives around £64k (closer to £66k with a £10k capital gains allowance).

With £100k profit the dividend route would be £100k - 22% (CT) = £78k. Adding 10% dividend credit and then applying 32.5% higher rate dividend tax gives you £58.5k.

[ASB]

Over three years ending next year I'm extracting as dividends 80K that's been in the company since before IR35 was invented. I will pay no tax on this as it will fall in my basic rate band. So in my case paying dividends is cheaper than paying any CGT at all.

But the company has already paid full CT on it. What you really mean is you personally will pay no extra income tax on it which is a different thing.

Key thing is, IMO, to ensure one uses all the nil and standard bands before considering whether accumulation in the corporate regime and capital payments are appropriate. Ultimately not using these bands means you only pay the same or more tax overall at extraction.

[IR35 Avoider]

18% is better than dividends

Maybe, if you're a higher rate tax-payer when you take the money.

Over three years ending next year I'm extracting as dividends 80K that's been in the company since before IR35 was invented. I will pay no tax on this as it will fall in my basic rate band. So in my case paying dividends is cheaper than paying any CGT at all.

The point someone made about how the money is invested in the meantime is wrong; the company can invest money in more or less the same way an individual can. (There are some slight differences in products available, levels of charges and levels of taxation, but they don't change the overall picture.)

[dude69]

Cater Allen business account:

Reserve Account (£ GBP) - Interest Rates (% p.a.)

Balance
Gross % p.a.*
AER%**

£500000+
5.250
5.38

£100000+
4.800
4.91

£50000+
4.700
4.80

£25000+
4.600
4.70

£10000+
4.400
4.49

£5000+
3.100
3.14

Is that supposed to be good?

Alliance & Leicester
Commercial Bank Business Instant Reserve
Deposit Account Issue 4 (Balance over £250k) 6.00%
Alliance & Leicester
Commercial Bank Business Instant Reserve
Deposit Account Issue 4 (Balance from £50k to £250k) 5.68%
Alliance & Leicester
Commercial Bank Business Instant Reserve
Deposit Account Issue 4 (Balance under £50k) 4.95%

[max]

So, If we have to close down by April what happens to the money from the last two years? Do we have to extract that via dividends before we close the company because it hasn't "tapered" enough yet.

The capital relief is "tapered"...so would be worth speaking with your accountant on the best way to handle.

Gut feeling...you missed that boat..but as it was only for 2 years...so no big deal. 18% is better than dividends. Rough guesstimate 1/2 of you'd pay if you take as dividends.

And it has the advantage that you know where you stand. With BATR...you never knew it would be granted.