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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My wife and I own a ltd company 50/50. There are 2 uk websites

Customer Question

My wife and I own a ltd company 50/50. There are 2 uk websites as the trading activities generating sales 50/50 of about £70k.
we bought the second website in June 2015 and someone has made a significant offer for the website which we are inclined to accept. This questions is about entrepreneurs relief.
They don't want to buy the company just the website asset. If the money goes into the company we would be hit by 20% corp tax, then dividend tax as we take the money out whereas we would love to get ER if applicable.
The sum involved would be about £1m.
Can we sell the website for circa £1m and get ER by winding up the company? I.e selling the asset not the shares? How does that work?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Who owns the website, the company or you and your wife personally?
Customer: replied 1 year ago.
The company owns all website assets. My wife and I own half the shares each in the company and we are both officers/directors.
Expert:  TonyTax replied 1 year ago.
Thanks. Leave this with me while I draft my answer.
Expert:  TonyTax replied 1 year ago.
Hi again. Since the company ownes the website, it will pay corporation tax at 20% on the gain (possibly some at 21% if the accounting period started before 1 April 2015). The problem then becomes extracting the cash from the company. A dividend payment would be too expensive taxwise. In order to be able to claim entrepreneurs' relief, you would need to formally liquidate the company which is not as expensive as it used to be. You should then be able to withdraw the cash as a capital sum and claim ER as if you had sold the shares which would cease to exist. CGT would be payable at 10% but you would also have paid 20% corporation tax. Taking a valuable asset out of the ownership of the company would be a "dividend in specie" which you can read about here. That would have significant income tax consequences for you and is probably not a viable option and may breach the ER rules which state that an asset has to have been in use for a year before a claim can be made. A change of ownership may start the clock ticking again. Take a look at HS275 for more information on ER. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
I have only owned the website since June 2015, so you mean I need to own it for a full 12 months to get ER? So, if I get corp tax at 20% then ER at 10% the total tax rate would be...28% correct?
Expert:  TonyTax replied 1 year ago.
In your case, the asset you own is the shares. Companiies don't get ER. By liquidating the company, you are effectively disposing of your shares and provided that you have owned them for at least one year up tp the point you dispose of the business, then you should be able to extract the cash as a capital payment. See HS275 for the qualifying criteria.
The effective rate of tax de 28% as you would have to pay CT at 20% and CGT at 18%.
Expert:  TonyTax replied 1 year ago.
Hi.
I'm just following up to find out if my answer helped or if you have any further questions.