Dissolving Company/CGT/Dividends

Froggitt

I own 20% of shares in a small family company in the Isle of Man. The shareholders have broadly agreed to wind up the company, sell the assets, and distribute the proceeds to the shareholders.

I believe CGT to the UK govt is payable on the gain between the time I inherited the shares and the eventual sale value.

Is it worthwhile (from a less tax perspective) to suspend (or reduce) dividend payments (which are liable for UK income tax) from now onwards and take the money instead as part of the dissolution?

There is a lot of retained profit in the company, which is being used to bump up the dividend payments which are not covered by the current level of profits.......does that change the answer?

TheCyclingProgrammer

In an ideal world it will be more tax efficient to receive dividends up to the higher rate tax threshold as no further tax will be due on these and then the rest as a capital distribution. If this was your own company and you were the 100% shareholder this would be the best thing to do but as you are not this really depends on what the other shareholders want to do.

Paying out enough dividends to take you up to the higher rate threshold (if you aren't already) might push other shareholders over the higher rate threshold so really there needs to be a discussion between all shareholders on how much they would like to distribute as a final dividend. Depending on everyone's level of income and shareholding it might not be possible to come up with a figure that is tax efficient for everyone.

Are you an employee or officer of the company and have you been for at least the last 12 months? If so, you might be eligible for entrepreneurs relief on any capital distribution which means any excess above your CGT allowance would be taxed at 10%.

Froggitt

Unfortunately the company isnt a "trading company" so the entrepreneurs relief doesnt apply. But a great suggestion that I hadnt considered.