Tax & Accounting News

Extracting Capital On Retirement

29/10/2009

When the time comes for business owners to sell up and move on, it can be difficult to decide on the best strategy to withdraw money from the company.

The good news is that if the shares are sold to another company or individual, or if the company is wound up with the assets and money transferred to the owner’s name, the transaction would be subject to Capital Gains Tax (CGT), but with the benefit of Entrepreneurs’ Relief, are taxed at an effective rate of 10 per cent.

That would be the most obvious route for most shareholders, but in some cases it may also be worth considering taking at least some of the capital as dividends. While the owner is still working, it is likely that they would be using up their allowances elsewhere, so would end up paying more tax this way, but it may be possible to keep the company running and take out dividends over a longer period of time.

If this is done when the owner retires, they may have tax-free allowances available to use, and it may also be possible to pay dividends to a spouse. This could mean that no tax at all is paid if the dividends remain within the basic rate bands each year.

For more information please contact us.