Retiring, and closing Ltd company efficiently.

[98elise]

I'm a one man band contractor (Ltd) and am looking to retire at the end of March. I've always kept a large cash buffer in the business account for lean times so I need to start planning the best way to exit. As I've not paid anything into my pension this year, the sum will be close to 80k.

As I see it the two most efficient ways of taking the cash out are ER, or Pension, but which is the best option based on:

Being 54 (so not long until I can draw down).
Company year runs Jan to Jan.
I've not used any of this years pension allowance.
My SIPP is already healthy so I don't need to put cash into it.
I'm on track to have received £50k income this financial year (so maxed out to 40% tax band).
I will have 12k taxable income from other investments next financial year so already taking all my tax free allowance.

The answer may be that I need to speak to a specialist which I will do when the time comes, but is there any broad brush advice considering my company year end is near.

[Eric Mc]

Try and make use of the Entrepreneur Relief available for winding up trading companies.

[UpTheIron]

I think it depends on your attitude to paying tax and whether you need the money in the next few years.

A straightforward MVL and use of ER will cost ~£1500 in fees and will incur CGT at 10%.... so you might see £70-£71k I guess.

Sticking £40k in your SIPP will also knock £8k of your CT bill for this year, meaning £40k into your SIPP and £48k to distribute via MVL... (approx £43k net). Overall £12-13k better off but of course that SIPP might attract some income tax depending on how much you draw etc.

Any unused pension allowances from previous years?

[Wilmslowboy]

UpTheIron said:

I think it depends on your attitude to paying tax and whether you need the money in the next few years.

A straightforward MVL and use of ER will cost ~£1500 in fees and will incur CGT at 10%.... so you might see £70-£71k I guess.

Sticking £40k in your SIPP will also knock £8k of your CT bill for this year, meaning £40k into your SIPP and £48k to distribute via MVL... (approx £43k net). Overall £12-13k better off but of course that SIPP might attract some income tax depending on how much you draw etc.

Any unused pension allowances from previous years?

I am waiting to hit the 24 month period to wind my own up (MVL), been quoted £3k (+ VAT), one-man IT contractor, 13 months of trading. Can you share the £1,500 option, I've seen the £750 online quotes but assume they were a bit cheap and nasty.

cheers

[98elise]

Eric Mc said:

Try and make use of the Entrepreneur Relief available for winding up trading companies.

This was my first thought as I will have access to the cash immediately. I've no doubt as soon as I have time on my hands I'll get the itch to start refurbishing the house. Bathrooms and kitchen are all 20-30 years old.

[UpTheIron]

MVL Online. Currently in flight with them and no issues so far.

I've also previously used Wilson Field. Not quite as slick but it was a fair few years ago now and IIRC they were cheaper still.

[98elise]

UpTheIron said:

I think it depends on your attitude to paying tax and whether you need the money in the next few years.

A straightforward MVL and use of ER will cost ~£1500 in fees and will incur CGT at 10%.... so you might see £70-£71k I guess.

Sticking £40k in your SIPP will also knock £8k of your CT bill for this year, meaning £40k into your SIPP and £48k to distribute via MVL... (approx £43k net). Overall £12-13k better off but of course that SIPP might attract some income tax depending on how much you draw etc.

Any unused pension allowances from previous years?

I want to pay as little tax as possible (legally!).

I don't have any unused allowances from previous years as I've been maxing out contributions in the past 3 years. I would have this year and next year's allowances though.

Assuming I want the cash available in the next year I suppose the best way of comparing the two options would be to look at the total tax paid if it was subject to CT, then ER vs SIPP then paying Income Tax (bearing in mind I will have no zero rate available).

[Wilmslowboy]

UpTheIron said:

MVL Online. Currently in flight with them and no issues so far.

I've also previously used Wilson Field. Not quite as slick but it was a fair few years ago now and IIRC they were cheaper still.

[UpTheIron]

98elise said:

I want to pay as little tax as possible (legally!).

I don't have any unused allowances from previous years as I've been maxing out contributions in the past 3 years. I would have this year and next year's allowances though.

Assuming I want the cash available in the next year I suppose the best way of comparing the two options would be to look at the total tax paid if it was subject to CT, then ER vs SIPP then paying Income Tax (bearing in mind I will have no zero rate available).

I guess there are 3 figures to model:

1. No SIPP contribution, take the lot via an MVL.
2. SIPP contributions to take the total assets to under £25k, so you can take the £25k via striking off, avoiding the need for MVL (but still getting ER - and also avoiding TAAR although probably not relevant). Should give you £22.5k to start the renovations!
3. SIPP contributions to £80k (or as close as possible).

2 & 3 of course have the complication of not having some/all the funds immediately available and the tax the extra pension income may/will trigger.

If you go the MVL route, I've recently used MVL Online. Pretty slick process, no issues so far (I'm still waiting for HMRC clearance to strike off, process typically takes 4-6 months from start to end). They do distribute ~75% after a matter of days though.

Edited by UpTheIron on Wednesday 1st January 19:57