How to get the biggest tax saving of all part 2

Author: Russell Smith
February 14, 2016

Entreprneur

 

Yesterday, I talked about how the 10% tax on a business sale and accumulated profits may end up being taxed at a much higher rate.

So if you have £200,000 in the bank and sell your business for £700,000.  The £700,000 could be taxed at 10% whilst the £200,000 would still be taxed at income (at the moment, you can have it taxed at 10%).

This means that you have to take the £200,000 out of the company as dividends and pay lots of dividend tax on it potentially 32.5% and 38.11%!

However, there is a way of actually being taxed at less than 10% on the whole of the £200,000.

If you only take out £43,000 a year, you will effectively be only taxed at 4.7%.  The first £16,000 is tax-free (£11,000 personal allowance and £5,000 dividend tax free allowance) and the next £27,000 is taxed at 7.5%.  Overall, this gives you a tax bill of £2,025.

You would then have to take out £43,000 out of your company over the next 5 years to pay this overall tax at 4.7%.

The disadvantage is that you have to wait for your income and it won’t be doing much in your company BUT remember you still have the income from your business sale (taxed at 10%) to live off and invest.

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