Liquidating a company

If you are reaching retirement and you no longer wish to trade you have a choice. If the total value of the company is less than £25,000 payments from the company can be taxed as capital.

If the value is more than £25,000 a formal liquidation has to take place to get capital treatment and the profit will usually be taxed under capital gains tax rules. Thus the rate of tax will be 10% or 20%.

Splitting distributions between tax years can unlock the availability of the capital gains tax annual exemption (currently £11,100) more than once.

If you want to treat the money though as a retirement fund and you are a basic rate taxpayer you could just keep the company going and pay out dividends each year. The first £5,000 will be covered by the 0% dividend allowance (if you have no taxable dividends from any other source) and the balance at 7.5%.

Particularly with capital distributions it is important to make sure that such distributions are not going to be caught by targeted anti-avoidance rules where HMRC will rule that such payments are deemed to be income payments.

Please contact us for further advice should be considering closing down your company.