Semi/Early Retirement at a young age

C-dog

LOL, getting over....coming to terms with it more like.

Met with my accountant yesterday as honestly we didn't know how to pay ourselves as directors of a ltd company. We've always just taken drawings.

Essentially things are the same, though he did mention we are now able to draw from our directors account (ultimately the good will we generated when we sold the business to ourselves) to the tune of 500-600k, though this is to be confirmed and I am aware corporation tax is to be paid on this.

Please correct me if I am misunderstanding this, but as my ISAs are fully funded and a SIPP would put the money beyond control for a considerable period (plus its full for this tax year anyway), I am best opening a taxable account and ploughing my investments into that? Then bed and Isa'ing at a much later date when salary is no longer?

If the above is true, am I correct in saying that I should set up my taxable account in a certain way to make bed and Isa'ing work down the line. I feel like I have read somewhere that I need to sell the earliest investments first or something similar. Apologies I can't remember the exact set up.

atush

Well you have ECTs and VCTs to consider.

Ask your acct if the company can use previous years allowances if you have already put in 40K this year.

Have you opened pensions for the OH, and ISas too?

C-dog

The corporation tax is already to be paid on this so I gain no benefit from putting it in a tax advantaged account, right? ECTs, VCTs for some reason don't hold any attraction. Illiquidity seems to be high.

TheTracker

C-dog wrote: »

Essentially things are the same, though he did mention we are now able to draw from our directors account (ultimately the good will we generated when we sold the business to ourselves) to the tune of 500-600k, though this is to be confirmed and I am aware corporation tax is to be paid on this.

Gideon changed the tax treatment of the disposal of goodwill this week. You've either been very lucky or very unlucky with your timing. Looks lucky to me, paying up to £100k less tax last year under the Labour introduced relief than Gideon's 2014 clampdown. You should ask your accountant to ensure this news is not relevant anymore. And consider it when you next vote. Article.

Also consider keeping that goodwill around for a while, because you can offset as expense for a few years if I understand correctly, reducing CT. I'm not an accountant, I just visit them.

On the pension question, my understanding it is still worthwhile to fill a SIPP with 40k each. That's a personal tax benefit, not company. The company treats pension payments as administrative expenses which could further offset that operating profit, reducing CT payable as well. Consult your accountant, you will not find many in your fortunate circumstance here. From what I can tell, you can go on producing many £100k's of profit before expense before CT would impact. But I am not an accountant.

C-dog

Goodwill is calculated at time of disposal of the old business/incorporation right?

We incorporated in October. I remember 4 years ago my accountant saying this would be stopped. I hope we have been on the lucky side.

TheTracker

Yep that's why I think you're OK. Unless the goodwill value is only accepted at first year accounts or closure of the other company. Accountant time...

C-dog

TheTracker wrote: »

On the pension question, my understanding it is still worthwhile to fill a SIPP with 40k each. That's a personal tax benefit, not company. The company treats pension payments as administrative expenses which could further offset that operating profit, reducing CT payable as well. Consult your accountant, you will not find many in your fortunate circumstance here. From what I can tell, you can go on producing many £100k's of profit before expense before CT would impact. But I am not an accountant.

The plan was to pay ourselves a basic wage, £8k then take dividends. Actually I need to get this straight in my head as I was planning executive pensions and company pension schemes, but our auto enrolment isn't until 2016, so thats 1 more years SIPPS contribution before looking at that.

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Directors take a basic wage - enough to cover living expenses. Say £10k. Anything above this, taken as a wage, will be for pension contributions only. £10k+£40k per shareholder tax free

Take dividends of say £10k per annum each. This added to our basic wage gives us £20k, which covers all our costs and more.

Directors goodwill can and will be taken when available after the above. Placed in ISAs, then taxable investments, but to be transferred to ISAs over time.

I think thats right. I need a glass of red

C-dog

TheTracker wrote: »

Yep that's why I think you're OK. Unless the goodwill value is only accepted at first year accounts or closure of the other company. Accountant time...

As a ltd company we didn't know how to pay ourselves, so we had a meeting with our accountant on Wednesday am and he essentially told us we had £500k or so to draw down as we wish. Fill yer boots.

However in previous conversations I am very aware that this figure has not been agreed by the revenue at this time.

An email has already been sent. Hmmm

Found this:
Entrepreneurs’ relief is not given automatically: one has to claim it by the first anniversary of 31 January following the end of the tax year of the disposal.

but
If on the incorporation of a business the transferor has control of the company, the disposal of goodwill will be a transfer between connected persons within TCGA92/S286(6). This seems to say disposal of goodwill is at time of incorporation. http://www.hmrc.gov.uk/manuals/cgmanual/cg68050.htm

TheTracker

Yes I worry your exposure is that CGT is payable in your personal tax year but not sure when calculated and HMRC is looking at valuation only. I've claimed against ER a few times but always the rate was the same at disposal as tax year. My self assessment shows progress against the £10m LTA. Do post how it turns out.

C-dog

I will most certainly. Thanks for your help