Company exits
If a company is liquidated, all the money distributed to shareholders is liable to CGT – at 10% (if Entrepreneurs’ Relief is available), 18% or 28%. If the company pays a dividend before being liquidated, that’s chargeable to income tax – taking the 10% tax credit into account, there’s nothing more to pay for a basic rate taxpayer, 25% of the net amount for a 40% payer and 36.1% of the net amount for a 50% taxpayer.
For many years, HMRC have allowed the CGT treatment where a company is informally dissolved rather than liquidated. From 1 March 2012, they are going to restrict this to distributions which don’t exceed £25,000. If the amount is more, it will all be charged to income tax – although you could pay a dividend first to leave exactly £25,000 on dissolution.
If you have a company with substantial accumulated reserves, and you are thinking about how to get the money out in the most tax-efficient way, we can advise you.