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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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, I'm in the process of retiring and would like to close

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Hi,
I’m in the process of retiring and would like to close my limited company.
• The company is up to date with its corporation tax.
• It has no employees.
• I'm the only director and shareholder.
• It has no debts and no creditors.
• It has no assets other than cash in two bank accounts, approximately £64k.
• The company has owned a property in the past, one furnished flat which was rented on short term lets to students in St Andrews. The Property was sold on the 19th July 2011.
• The company’s main business was consultancy and the contribution to the company’s income from the flat was small.
• The company has not traded in the current tax year 2014/15.
Can I claim Entrepreneurs’ Relief?
I’ve looked on the website https://www.gov.uk/entrepreneurs-relief/eligibility and I don’t see any reason why I can’t claim Entrepreneurs’ Relief, but I’m concerned about eligibility because of the flat the company once owned.
Can you please clarify?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Take a look at the HMRC manual pages on ER here and at some independent commentary here.

The fact that the company no longer owns the flat is a good thing. Provided the company (you) was not engaged in activities ancillary to the main business for more than 20% of the total time spent engaged in company activity or the income from non-trading activities did not contribute significantly to the company's bot***** *****ne, claiming ER successfully should not be a problem.

Once concern is that you have a sizeable cash balance in the company which HMRC may see as being excessive compared to what is needed to run the company and some of which may be the profit made from the sale of the flat. If you can take some of that as dividend, it will help, but obviously you want to avoid incurring a higher rate personal tax liability.

You may or may not be aware that there is now a £25,000 limit on cash being distributed as capital (as opposed to dividend) where an informal liquidation of the company is planned. You can read about that here. In order to withdraw more than £25,000 as capital, a formal liquidation process has to be followed and a liquidator appointed. This can be expensive, though the proliferation of such services available through the internet has pushed prices down significantly.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Hi, I'm just thinking about your answer, there's a lot of info' to read through, but the central issue seems to be whether the sale of the flat in 2011 was a a significant part of the company's business.

The flat was bought in 1999 for £51.5k and sold in 2011 for £152,954..

The rent In 2011 was £500 per month.

Whilst I was working as a consultant my day rate was between £350 per day and £750 per day.

The company made a profit of £61,812 at the 1st April 2013. the last year it was really active.

How do these figures sound in relation to the 20% maximum which seems to be the norm from my quick reading of the references you sent me?

Sorry I've taken so long to reply, I had to look out the figures.

Expert:  TonyTax replied 1 year ago.
What happened to the profit made from the sale of the property in 2011? Was ny used to pay off a mortgage? What has the dividend policy been in recent years?
Customer: replied 1 year ago.

Hi, we made a personal loan to the company to buy the flat, the proceeds of the sale were used to pay off the loan. Interest was paid on the loan at a reasonable rate i.e. a rate acceptable to HMRC.

The dividend policy throughout the companies life was only to take very low dividends. My wife had a good well paid job and we didn't need the money.

The last 2 years, I've taken dividends to bring my total income up to the 40% threshold, about £8k last tax year. The rest of my income is now from pensions.

Expert:  TonyTax replied 1 year ago.
The profit from the flat is not insignificant but whether it is enough to deny you ER, I could not say without seeing a record of the company's results since 1999. Indexation allowance would have reduced the taxable gain and corporation tax would have been paid on the resulting profit figure so you would have been left with a sizeable net of tax gain.

I cannot see that the time spent on managing the flat would have been significant even if there was no agent but the dividend flow may influence the HMRC view. If I were you, I'd take as much as I could in the form of dividends and then investigate the possibility and cost of formally liquidating the company and weighing that up against the potential tax saving, ie paying CGT at 10% as opposed to income tax at 22.5%. An alternative would be to drip feed dividends over a number of years but that would mean keeping the company alive with the associated compliance costs. You might also consider splitting the shares between yourself and your wife, though HMRC may try to attack such a move.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15754
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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