tax free dividends and closing a company

theGrinch

A friend of mine is wants to close his company and
told me that he can recieve £8,800 in dividends tax free.
is this correct or an urban legend?

WHA

The idea is right, but terminology isn't.

If dividends are paid, they will be taxed under the normal rules for a higher rate taxpayer.

What he is referring to is a final capital payment which is taxed under capital gains tax rules, so that the first £8,800 is tax free as it is covered by the CGT annual exemption.

It gets better as it is also possible to claim business asset taper relief reducing the "gain" by 75% if the company had been trading for over 2 years.

So, in fact, he could have over £30k tax free. £30k less 75% gives £7,500 covered by annual cgt exemption. All very standard practice.

Approval from HMRC is needed prior to doing it and he would need to make a few confirmations to HMRC, such as that all taxes will be paid, the company really is ceasing etc.

As long as the paper trail is right from start to finish, this works very well.

theGrinch

thanks for the reply. its given us all something to think about.