Commentary

D6.657 Profit extraction from family companies—capital transactions

Corporate tax
Corporate tax | Commentary

D6.657 Profit extraction from family companies—capital transactions

Corporate tax | Commentary

D6.657 Profit extraction from family companies—capital transactions

Many commentators suggest the use of capital transactions as a tax-efficient method of extracting profits.

Clearly, capital transactions are not generally appropriate methods for withdrawing profit on a regular basis as they involve an element of finality. However, they may be appropriate on certain occasions, such as on the retirement of the business proprietor.

Tax implications

A potential advantage of such a transaction is that gains (on or after 6 April 2016) are taxed at a flat rate of 10% or 20% where the total taxable income of the individual exceeds the income tax basic rate. Gains on accrue on or after 23 June 2010, and before 6 April 2016, were taxed at a flat 18% or 28% where the total taxable income of the individual exceeded the income tax basic rate band.

Method of share disposal

Disposing of shares generally involves one of the following:

  1.  

    (a)     sale

  2.  

    (b)     liquidation; or

  3.  

    (c)     company repurchase of own shares

Clearly, the first of these can give a capital gain which might be relieved by offset against other

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