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bigduckontax
bigduckontax, Accountant
Category: Tax
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I own some land personally and have the opportunity to get

Customer Question

I own some land personally and have the opportunity to get a large sum of money for some extraction of gravel rights (circa £80k). This would be paid in a lump sum, and the company paying would then be able to extract the product. Is the most tax efficient way to receive the £80k be to set up a company rent the land to the company for a nominal fee, and then draw the money from the company over a number of years through dividends, or liquidate it after a year and get 10% Ers relief. The challenge is that my wife and I are both near the 40% tax bracket so dividends would get 22.5% tax rate. If I did liquidate after a year, would that qualify for Ers relief as it was just one transaction ?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Look here for an excellent summary of taxation of gravel rights:
http://www.taxation.co.uk/taxation/Articles/2003/10/13/249881/gravel-money
You will see that extraction profits are split 50/50 between income and capital gains. The use of dividends to get the money out does not affect the profit of the company for Corporation Tax (CT). Also you have to consider the personal effect on your finances for such distributions will be grossed up for tax at your marginal rate of tax and could breach the 40% barrier. CT is 20%, your personal position could be a 40% rate.
I am of the opinion that as far as Capital Gains Tax is concerned you should receive Entrepreneurs' Relief which limits taxation to 10% flat rate as opposed to the normal 18% or 28% depending on your income including the gain in the year of sale. This may be more cost effective for you than taking dividends at all so a liquidation warrants careful consideration as part of tax planning.
I do hope I have given you some idea of which way the cat should jump to your tax advantage.
Customer: replied 2 years ago.

Hi

I've replied twice to this but not had a response

You have pointed me to an article that I would have to subscribe to and pay for an answer on, which is why I would use this service?

So can you provide me with the article or answer fully relating to gravel rights.

My understanding is that as there is no indexation relief the 50:50 split income capital is irrelevant if routed through a company - correct?

Expert:  bigduckontax replied 2 years ago.
I am very sorry, my inbox seems full of such complaints recently. There must be yet another glitch in the system.
I have, in any event mislead you as the law on this matter has indeed been changed and you should ignore my original answer. The moneys you receive are wholly liable to Income Tax. Here is an extract from Birkett's [Solicitors] article on the subject:
'What this means for landowners in receipt of mineral royalties is that after the relevant operative date (31st March 2013 for companies and 5th April 2013 for others) they will no longer be able to treat 50% of mineral royalty receipts as Capital Gains. Instead, all mineral royalties will need to be treated as income and this may result in a higher rate of tax being applied overall to mineral royalty receipts. Landowners may wish to take advice about the impact of these changes, particularly for higher rate tax payers. It might be appropriate, subject to other considerations, for landowners to consider sharing royalty income with other members of their family, to take full advantage of tax allowances and lower tax rates where those are not being fully utilised at present.'
You can find Birkett's full article here:
http://www.birketts.co.uk/resources/legal-updates/1347/taxation-of-mineral-royalties/
It would therefore be more advantageous for you tax wise to receive your 80K spread over at least two tax years to avoid heavy taxation at 40% or maybe loose your personal allowance altogether if your income rises much above 100K.
Please accept my sincere apologies for my original error.
By the way, Indexation Relief is still available for companies capital gains.
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Category: Tax
Satisfied Customers: 3590
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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