Deceased parent’s corporation tax
sazzlefrazzle99
Posts: 7 Forumite
in Cutting tax
Very sorry for the morbid and unusual topic, just wanted some opinions.
My dad passed away a month ago, I am now trig to get his affairs in order.
He worked as a freelancer through a limited company, and left a lot of his earnings in there accidentally. There is about £18k, which his accountants say £6k is due to be corporation tax. Their advice has been for me as new director to pay this debt and draw the rest of the money.
I got chatting to another accountant in my local pub (as you do) and he said to take the full amount of money and not bother with the tax as I won’t be personally responsible for the tax.
The rule abiding part of me is leaning towards paying the tax and taking the rest - but also of course I am tempted by extra money. I wondered if any one had input on which road would be wiser?
My dad passed away a month ago, I am now trig to get his affairs in order.
He worked as a freelancer through a limited company, and left a lot of his earnings in there accidentally. There is about £18k, which his accountants say £6k is due to be corporation tax. Their advice has been for me as new director to pay this debt and draw the rest of the money.
I got chatting to another accountant in my local pub (as you do) and he said to take the full amount of money and not bother with the tax as I won’t be personally responsible for the tax.
The rule abiding part of me is leaning towards paying the tax and taking the rest - but also of course I am tempted by extra money. I wondered if any one had input on which road would be wiser?
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Comments
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The 'accountant' down the pub doesn't have the foggiest idea what he is talking about.
The company is still 'alive' and it the corporation tax is due from the company assets (i.e. it's bank balance). Anything left after clearing the debts can be taken as a dividend or a capital distribution.
The existing accountant is best place to advise.0 -
It is the company that is liable but Directors can sometimes be held personally liable if it can be shown they've deliberately and fraudulently taken steps to evade paying tax. In any case I would imagine HMRC would object to any winding up if it owes corporation tax (or any taxes).
As above the simplest thing to do would be to file any tax returns and pay any taxes due as is your responsibility as Director, then wind the company up. Assuming you've also inherited the shareholding, you can distribute what is left - it depends on your personal tax situation but the most likely tax efficient route would be to pay a £2k dividend (using up the zero rate dividend band) and take the rest as a capital distribution which would be subject to CGT and covered by your CGT personal allowance assuming you have had no other gains.0 -
Hi everyone! Thanks for the opinions - glad to know my gut instinct was right.
What is the threshold for capital gains, i started reading and couldn’t figure out if I fell in the £12k or £6k category.
After corporation tax there is £12k but I’m splitting it with my brother so perhaps it would be best if we both became directors and did it that way?
We are also name beneficiaries of my late father’s offshore pension pot which is another £25k - when we claim that is it also capital gains?0 -
Who inherited the shareholding in the company? Who the director is isn't really important here.
If you and your brother have 50% of the company each, then you can both receive £2k each in dividends without paying any income tax (assuming you have no other dividend income that has used the £2k band).
You can then take your share of the remaining £8k as a capital distribution on winding up which will fall within the CGT allowance. So in total you should receive £6k each tax free.0 -
unless you want a repeat of the pub conversation you will need to explain exactly who is entitled to whatsazzlefrazzle99 wrote: »After corporation tax there is £12k but I’m splitting it with my brother so perhaps it would be best if we both became directors and did it that way?
We are also name beneficiaries of my late father’s offshore pension pot which is another £25k - when we claim that is it also capital gains?
your father owned share(s) in a company
that company has 18k of cash and a liability to pay 6k to HMRC (as a director you really do not want to evade paying the tax owed by a company with your name on it) leaving it with 12k to be distributed
did your father have a will? Who inherits the shares in the company because that he what he left. Being a director is irrelevant in that context.
if both you and your brother get "everything" under his will split 50/50 then that is what has to happen. With the company having less than 25k it is possible to close it relatively easily as you have read, but your and your brother's entitlement to the money from the company is because "you" inherited and are now shareholders in it, not because you are (or are not) diretcors of it.
There may be technical issues if father owned only 1 share, since that share will need to be split so that a 50/50 entitlement can be created and then paid. For that you need to see your accountant
Only when it has been confirmed that both you and brother are shareholders can the distribution of the remaining cash be dealt with in the most tax efficient manner - either a dividend or a capital close out.
claiming an offshore pension fund as beneficiaries upon death is best left to professional advice.0 -
Worth noting in addition to the above that if only one of you inherited the shareholding if you both have the full unused dividend and CGT allowance you should still be able to get the full £12k out tax free and then you’d be free to gift half of that to your brother without any further tax implications.
But as the post above says if you have inherited the shares equally then you should speak to your accountant to make sure that’s been formalised and any shares issued if necessary.0 -
And don't forget to pay the "proper" accountant, too.
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