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This relates to UK Tax. My wife is a shareholder and director

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This relates to UK Tax.
My wife is a shareholder and director in a private limited company. The company has a significant asset - farm land - with a value in excess of 9 Million Sterling. There is also cash in the bank in excess of 600,000 Sterling. The shareholders of the company are siblings. Some of them want to realize some or all of the value represented by their shareholding either by selling the land and paying out the proceeds as some kind of dividend, or selling and dissolving the company and then getting the proceeds that way. Others may want to take some out now and then receive an income down the years.
If the land is sold and the company dissolved, would the distribution be treated as Capital Gains and taxed at 28%?
The land was effectively gifted to the Company, by the parent, more than 12 years ago and has always been carried on the Balance Sheet with a value of 1.7 million Sterling. Would the taxable gain be 9 million less 1.7 million - so 7.3 million or would it be 9 million? Presumably for the gain to be taxed as Capital Gains, then the shares themselves have to sold/
There is also a net cash balance in excess of 600,000 Sterling.
If the individuals took money from the company as a dividend at what rate would they be taxed? One is a non-earner, and all but one of the others is a standard rate - not high tax payers. One is probably close to 150,000 Sterling annual income.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question - I am Sam adn I am one of the UK tax experts.
With a limited company, the sale of any asset is charged Corporation tax - so this would be the usual rate at which the Corporation tax is paid on -
The value would be 9 million less 1.7 million but a furtehr deduction would be made to take into account for inflation - see link here from gov.uk detailing how a charge is calculated on intangible assets.
https://www.gov.uk/tax-when-your-company-sells-assets/overview
Then you ask what rates would the individuals be charged at if the cash were drawn as a dividend.
First the company would have to retain 10% of the amount paid over - as this would be the notional tax charge - and of course the payouts can only made taking into account their being sufficient funds to pay the Corporation tax.
But individually -
For the non earner - the first £31185 (basic rate band) of the dividend would remain liable at 10% - the next £100215 at 32.5% and anything over £150,000 at 37.5%
(OF course less than 10% suffered)
The standard rate taxpayers would have whatever remaining basic rate band left to allow that same amount of dividend at 10% then the rates as advised with the non earner.
So the one close to £150,000 would pay most of the dividend at 37.5%
Thanks
Sam
T
Customer: replied 2 years ago.

Thanks for the swift response.

So that I am clear. If the assets were sold and then the proceeds paid out to shareholders, there would be two tax events - the Company would pay Corporation Tax at 21% on the net gain and then the shareholders would pay tax on the dividend at the rates shown - 10% on first 31,185, 32.5% on next 100,215 and then at 37.5% on the remainder? Or would the shareholders always pay at a certain rate.

Say for example, someone that has no income. The dividend pay-out is 400,000. Would this person pay 10% on 31,185, 32.5% on 100,215 and 37.5% on 268,600

Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
Yes - that's right - other than the fact the shareholders would pay the rates according to what basic rate band they had used against their normal annual income.
But the rates are on the rate band scale - with personal allowances taken into account
First £31875 at 20%
Next £118215 at 40%
Over £150,000 at 45%
Then for dividends this changes from
40% to 32.5%
45% to 37.5%
So your example of the NIL income individual - yes you are right
But also remember that of those rates then 10% is deducted as this is what the company would have retained as the tax credit from the dividend.
So the non income earner - in terms of tax they actually suffer would be
(NIL on £10,600 as this is the annual personal allowances)
NIL on the next £31185
Then 22.5% on the next £118215
Then 27.5% on anything over £150,000
Sop on a £400,000 payout
First £10,600 tax free
Next £31185 tax free
Next £118215 at 22.5% = £26,598
Remaining £240,000 at 27.5% = £66,000
So total tax position £92,598
Leaving £307,402
Thanks
Sam
Thanks
Sam
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