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Entrepreneur's Relief

Including Financial Independence and Retiring Early (FIRE)
adriangs
Posts: 15
Joined: December 31st, 2019, 10:57 am

Entrepreneur's Relief

#495364

Postby adriangs » April 20th, 2022, 9:53 am

I will of course be running the following past an IFA and my accountant, but I'd be interested in informed views:

For over 20 years, I've been the sole owner and director of my service company (ltd.) which has been paying my salary/divs and pension contributions.

Current company assets are around £800K: £500K in equities (various investment trusts mainly), the rest is cash. Which I know ain't a pretty scenario in an inflationary environment like this..

My industry was never particurly buoyant even before the pandemic; I just got lucky with a couple of big-paying jobs. - hence the assets.

But even though things are slowly starting to pick up, there's no realistic prospect of the company being able to sustain that previous level of earning, which fell off a cliff during the pandemic.

It's also looking increasingly like it's not worth having a ltd co. for what I do.. I'm effectively a one-man service operation, and I could be conducting that activity as a sole trader just as well.

I'm 54, so not quite retiring age yet, and although I've got around £750K in personal assets, I'm not a property owner, so until I buy something to live in, I'd be facing rental costs into retirement.

Up to now, my plan had been to extract money from the company via salary/divs/pension until it's run down, but I'm wondering if I should liquidate the whole thing now and go for the Entrepreneur's Relief option instead?

The main questions I have about that route are:

1) Is it efficient to do this (i.e. liquidate company-held equities, take a CT hit on any profits, then take the whole lot out of the company and be taxed 10% (is it 10% for ER?) rather than just let it sit there as per the previous plan, paying my income/pension?

2) If I went ahead with it, are there any rules about what I'm then allowed/not allowed to do in terms of continuing business activity in my line of work? i.e. if I just became a sole trader in the same line of work, is that permitted?

3) Are there any other considerations I should take into account?

Thanks for all thoughts..

A.

bluedonkey
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Re: Entrepreneur's Relief

#495381

Postby bluedonkey » April 20th, 2022, 11:05 am

Your IFA and accountant will have informed views!

Laughton
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Re: Entrepreneur's Relief

#495388

Postby Laughton » April 20th, 2022, 11:30 am

Bear in mind that I am NEITHER an accountant NOR and IFA but a couple of years ago I put my limited company through a members voluntary liquidation as I wanted to retire and benefit from the reduced 10% Capital Gains Tax allowance.

When I went through the process it was, as you say, called Entrepreneurs Benefit however I think it is now called Business Assets Disposal Relief.

The rules may well have changed but from what I remember:

1. Once you have gone through this you are not allowed to conduct the same or basically similar business for a period of 2 years.
2. The process can take a long time.
3. I pretty much did it all myself although it is necessary to use a licensed insolvency practitioner. I found one falrly close to me, it was all done on-line and I was charged a flat fee of £2,000 plus there were a couple of disbursements (for a bond to safeguard the money held by the liquidator and some statutory advertising costs). The liquidator I used is based in Brighton. They did a good job and I would be happy to recommend them if you are interested. Flat fees are best.
4. I claimed the relief through my self assesment tax return as I stopped using an accountant many years ago. It was not all that straightforward (the Capital Gains section of the tax return is not very intuitive) but I managed. As you say you use an accountant thei should not be a problem for you.
5. The date on which you liquidate your company can have a significant bearing on how long the process takes and how much tax you can save. For instance, if you can get the liquidator to spread disbursements to you over more than one tax year then you can benefit from more than one year's capital gains tax allowance.
6. It didn't apply to me but you should check that you will qualify - it's possible that HMRC might decide, in their infinite wisdom, that your company is an investment company (you say that most of the company's assets are shares etc.) rather than a trading company and this might have a bearing.

I did start a thread setting out my experience, in case that might be of interest - viewtopic.php?f=2&t=18261

hiriskpaul
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Re: Entrepreneur's Relief

#495424

Postby hiriskpaul » April 20th, 2022, 2:31 pm

Do you qualify for Business Asset Disposal Relief? As you hold a significant investment portfolio you may not be considered a investment holding company which would disqualify BADR. Check with your accountant.

I have a personal services company and I have chosen to run it down via dividends and small PAYE payments. I need to review this though in light of increases in corporation tax and the loss of indexation allowance. Because I have not traded for some time I suspect that my company may get classified as a close investment holding company which will mean 25% corporation tax from next April.

adriangs
Posts: 15
Joined: December 31st, 2019, 10:57 am

Re: Entrepreneur's Relief

#495540

Postby adriangs » April 21st, 2022, 8:57 am

>>
Do you qualify for Business Asset Disposal Relief? As you hold a significant investment portfolio you may not be considered a investment holding company which would disqualify BADR. Check with your accountant.
<<

I *am* still trading, though at a much lower level than before. And of course, I could always suddenly find that things pick up again.

But interesting to read the replies here, thanks all. Sounds like the accountant will have to look at it very carefully to determine if it's worth doing.

A.

BigTim
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Re: Entrepreneur's Relief

#495829

Postby BigTim » April 22nd, 2022, 5:08 pm

I went through an MVL with my ltd co after 20 years of trading and also claimed EP (as it was then) to reduce CGT.

As others have pointed out: having a large proportion of the assets in a share portfolio might be a problem and disqualify you from EP/BADR. You will want to investigate this yourself and then have an accountant confirm.

There are other possibilities beyond the gradual run down of the accumulated funds ("money boxing" as it used to be known) through divs and salary.

You have not mentioned if you are married/have a civil partner. If so you could transfer some shares to your spouse and use their allowances. After 2 years of ownership and, if the funds are in cash, you might both qualify for EP/BADR.

You can also open a pension and put £40k into it to negate some CT, if you've had a pesnion scheme open for some years you can carry unused allowances forward from those years and put larger amounts in though it may only make sense if you've trading profit in this current year to reduce CT (if you're paying to a pension from already taxed funds there's less benefit).

A few ideas to ponder.

adriangs
Posts: 15
Joined: December 31st, 2019, 10:57 am

Re: Entrepreneur's Relief

#497033

Postby adriangs » April 27th, 2022, 5:39 pm

The pension extraction thing I already have in place (up to the allowable limit)

When you say:
>>You have not mentioned if you are married/have a civil partner. If so you could transfer some shares to your spouse and use their allowances. After 2 years of ownership and, if the funds are in cash, you might both qualify for EP/BADR.<<

Interesting..when you say "transfer some shares", how does this work, given that they're company assets?

A.

Laughton
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Re: Entrepreneur's Relief

#497038

Postby Laughton » April 27th, 2022, 6:28 pm

Interesting..when you say "transfer some shares", how does this work, given that they're company assets?


Don't think so. They're your assets. You can simply transfer however many you want to whoever you want. Simple form available from Companies House.

UpTheIron
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Re: Entrepreneur's Relief

#497482

Postby UpTheIron » April 29th, 2022, 3:00 pm

Laughton is referring to transferring some of the ownership of your Ltd - i.e. shares that you own in your Ltd company, not transferring the shares (in other companies/trusts) owned by the Ltd company.


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