Tax implications on retirement; Limited Company
Discussion
What happens to the cash built up in a business when I retire? Although it is 10 years away when I retire I would like to get at the money that has built up, preferabl;y with a minimum tax liability. I currently pay myself in share dividends up to the 40% tax threshold, which leaves some cash in the business each year. Are there special arrangements for closing a company on retirement (and at what age?) and are you then restricted in the future from doing it again?
The old style Gapital Gains Retirement relief was abolished a number of years ago. However, to some extent, the relief has been replaced by the favourable Taper Relief available on the disposal of a business asset. Sales of shares in or disposal of the whole business in an owner managed small company would normally count as the sale of a business asset and would therefore qualify for Business Asset Taper Relief.
Don't forget, when you finally bow out of the business, you may not be just extracting the last amounts of cash sitting in the company bank account. You may be actually selling the business as a going concern and realising more than just the net value of its tangible assets. In other words, you migt be able to sell the business at a premium.
Does the company pay into an approved pension scheme?
That might be one way to remove "personal" funds from the business without suffering any personal tax (and, indeed, obtaining tax relief for the company whilst you are paying into the fund). If such a scheme is in operation, you could pay lump sum amounts into it prior to retirement without suffering any personal tax.
Don't forget, when you finally bow out of the business, you may not be just extracting the last amounts of cash sitting in the company bank account. You may be actually selling the business as a going concern and realising more than just the net value of its tangible assets. In other words, you migt be able to sell the business at a premium.
Does the company pay into an approved pension scheme?
That might be one way to remove "personal" funds from the business without suffering any personal tax (and, indeed, obtaining tax relief for the company whilst you are paying into the fund). If such a scheme is in operation, you could pay lump sum amounts into it prior to retirement without suffering any personal tax.
Edited by Eric Mc on Monday 16th October 08:52
Eric Mc said:
The old style Gapital Gains Retirement relief was abolished a number of years ago. However, to some extent, the relief has been replaced by the favourable Taper Relief available on the disposal of a business asset. Sales of shares in or disposal of the whole business in an owner managed small company would normally count as the sale of a business asset and would therefore qualify for Business Asset Taper Relief.
Don't forget, when you finally bow out of the business, you may not be just extracting the last amounts of cash sitting in the company bank account. You may be actually selling the business as a going concern and realising more than just the net value of its tangible assets. In other words, you migt be able to sell the business at a premium.
Does the company pay into an approved pension scheme?
That might be one way to remove "personal" funds from the business without suffering any personal tax (and, indeed, obtaining tax relief for the company whilst you are paying into the fund). If such a scheme is in operation, you could pay lump sum amounts into it prior to retirement without suffering any personal tax.
Don't forget, when you finally bow out of the business, you may not be just extracting the last amounts of cash sitting in the company bank account. You may be actually selling the business as a going concern and realising more than just the net value of its tangible assets. In other words, you migt be able to sell the business at a premium.
Does the company pay into an approved pension scheme?
That might be one way to remove "personal" funds from the business without suffering any personal tax (and, indeed, obtaining tax relief for the company whilst you are paying into the fund). If such a scheme is in operation, you could pay lump sum amounts into it prior to retirement without suffering any personal tax.
Edited by Eric Mc on Monday 16th October 08:52
Although I would like to think I cvould sell it as a going concern that is unlikley as it depnds mainly on my specialist skills and knowledge, but I was hoping to develop business which didn't require those skills. We have a company [pension, but not sure if it is 'approved'. I will take it up with my accountant when I see him next month. Tnanks Eric
Predicting where the tax legislation will be in ten years is very difficult, there are already rumours in the tax press that taper relief is going to be changed/restricted in some form as it is a very generous tax regime. There will always be ways to minimise your liability but be warned!
Edited by wattsm666 on Tuesday 17th October 08:46
Taper Relief is fairly new (1998) and replaced the old "Indexation" system - which had been in place since the introduction of CGT in 1965. It is actually more generous now compared to its earlier versions but, as you say, trying to guess what tax legislation will be in place in 10 years time is pointless. All you can do is offer advice based on current rules.
Gassing Station | Business | Top of Page | What's New | My Stuff