Family company cash extraction

If you own, along with your spouse, a limited company and if the value of that company is at least £2m, then you really must read on.

Getting a sizeable amount of cash out of a limited company has always been a problem because shareholders have to pay Income Tax on dividends above the Higher Rate threshold. This makes the extraction of cash a pretty expensive exercise, with large Self-Assessment liabilities often arising. Historically, registered schemes, usually involving EBT’s and EFRBS of other complex structures have been offered to company owners but since the introduction of the General Anti Abuse Rule (GAAR) these schemes are now deemed ‘off piste’.

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The great news is that this particular piece of planning is subject to HMRC advance clearance or ‘approval’ meaning that, in addition to it being incredibly lucrative for you, it’s also risk free. If we can’t get HMRC clearance for the planning, then we won’t implement it and you won’t have any fees to pay. You can’t ask for more than that!

So, you have absolutely nothing to lose by contacting us and, potentially, an enormous amount to gain. If you’re interested in saving a huge amount of tax, please just pick up the phone.

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Client

Client Case Studies

Family Business

  • Husband and wife own company worth £5m

  • Both are Higher Rate taxpayers

  • They wanted to take a lump sum of £1m cash from the company and also draw £500k per annum

  • Tax and national insurance cost would have been almost £2.5m over 5 years by taking salaries

  • Total five-year cost including tax and our fees is £998k

Read Full Story

Our clients, a husband and wife, owned a limited company which had a significant amount of cash in its bank account. They had been reluctant to extract the cash from the company because of the huge impact it would have on their personal tax liabilities. They could have made great use of the cash in their personal lives, using it to pay off the mortgage on the family home and discharge other personal debts. But taking the cash as salary or bonus would have attracted a punitive 45% rate of income tax and even if they had taken it as dividend, they’d have suffered income tax 37.5%. Their company had been generating profits of around £1m per annum for a number of years and they knew that it must have some value. They could, of course, have sold the company and paid just 10% capital gains tax on the proceeds (they qualified for entrepreneur relief) but they didn’t really want to do this as they knew there was potential to build the company’s value further prior to a disposal.

Having spoken with them, we identified that, in an ideal world, they’d take annual drawings of £500,000 between them and also pull out a lump sum now of £1,000,000 to enable them to get rid of personal debts. To take out £1,500,000 in 2014/15 as salaries would cost them £683,718 in personal income tax and national insurance. Using 2014/15 tax rates, their £500,000 per annum for future years would cost them £448,718 in tax and national insurance, each year. So, after 5 years, they’d have taken out £5,000,000 but paid a total of £2,478,590 in income tax and national insurance, leaving them with a personal disposable total of £2,521,410. That’s a pretty depressing thought.

Using our high net worth planning strategy, we restructured the company for them, having obtained HMRC clearance to do so, based on a company valuation of £5,000,000. The result was that, after taking into account all tax liabilities and our own fees, the clients will now be able to extract £5,000,000 from their company and retain over 80% of it. That’s equivalent to a tax rate of less than 20% and with no national insurance cost. The precise amount that they will retain, of the £5,000,000 is ££4,002,200. In other words, it will have cost them £997,800 to take out £5,000,000. The salary method would, as we have seen above, have cost them £2,478,590. We have saved them £1,480,790 over a five year period, even after taking into account the fees for doing so. That’s really quite an astonishing result.