How to get money out of a Limited Company
Since 5 April 2013 the additional rate of income tax payable on income over £150,000 is reduced from 50% to 45%.
Many earners in this tax bracket receive their income as dividends. A 40% tax payer pays an effective rate of tax on the net dividend of 25%
Because of the 5% reduction mentioned above a 45% taxpayer (receiving gross income above £150,000) pays a rate of tax reduced from 36.1% to 30.6% on the net dividend.
As the top rate of capital gains tax is 28%, there is now not such a big difference between capital gains and income tax 28% compared with 30.6%).
So if the company could go into a members voluntary liquidation the funds would be extracted at 28%.
Of course the voluntary liquidation route is usually the preferred option in order to extract funds at 10% using Entrepreneur’s Relief.
Pension contributions have always been a useful way of extracting funds, particularly for those coming up to retirement. These are still available but are capped at £50,000 per annum.
There are other areas which can be considered:
- Rental income
Where a director owns and asset for example a building, or equipment but makes that asset available for the use of the company he can charge rent . Of course, he or she pays tax on the rental income but can offset any costs of maintaining the asset. Even if tax profit is made on the transaction so that income tax is payable, there is nevertheless a national insurance saving.
- Use of Home As Office
As with a. above, the director can rent a part of the home to the company if work is carried out there. Against this are offsettable expenses such as light and heat and relephone.
Family members often help out on a part time basis. In some circumstances, by properly rewarding them the family as a whole could save tax.
There is no general rule as to what works best and at Tuchbands we tailor our advice according to individual circumstances.