Capital Distribution - (tax planning)

[Welshbeef]

OK I have been granted Capital distribution from HMRC and have c£20k awaiting to come my way.

The thing is I tried to tfr it last night and found that the max value per day is £10k... Now this got me thinking say I put through the £10k tfr in 09/10 tax year last day of and the remainder in 10/11 tax year. Clearly this is tax planning to get around 18% on >£10.3k and roughly is £2k which I could save in tax.

It wouldnt be my fault as I tried to get all the cash out in 09/10 but the banks systems prevented this withdrawl so I took the remainder out the following working day - it just happend to fall over 2 different tax years.

Now am I being too much in the grey area?

[UpTheIron]

I recently wound up a company and was granted ESC C16 and therefore allowed to distribute the retained profit as capital rather than income. I posed a similar question to my accountant (albeit without the excuse you have) and was told that I could not do this.

I suspect that a single capital distribution must be made and therefore this can only be done on a single date - so even if the payment is spread over two days it is counted as a single payment on the first date.

Happy to be wrong though...

[Welshbeef]

I'm pretty sure there is no way round it and clearly if I have to pay the £2k tax I will without issue but if this is a valid scenario then I have 2k worth of reasons to make it happen.

It's also not a question I want to ask hmrc so I might actually take the lumps out in two goes into the two different tax years and once it's done like that pose the question to see what options there are...

[Eric Mc]

HMRC are wary of capital distributions which have been deliberately split to occur in two or more successive tax years. They are suspicious because they may see this as a ploy to trigger a number of annual CGT allowances. They can block such transactions or, more likely, treat the series of transactions as one transaction based on the date of the original distribution.

If you are not a higher rate tax payer, perhaps you could look at having staged dividend payments over a couple of years. If you do not pay tax at the higher rate, dividends are essentially tax free.

[Welshbeef]

Eric Mc said:

HMRC are wary of capital distributions which have been deliberately split to occur in two or more successive tax years. They are suspicious because they may see this as a ploy to trigger a number of annual CGT allowances. They can block such transactions or, more likely, treat the series of transactions as one transaction based on the date of the original distribution.

If you are not a higher rate tax payer, perhaps you could look at having staged dividend payments over a couple of years. If you do not pay tax at the higher rate, dividends are essentially tax free.

Higher tax rate.

I have calculated that it is more tax effective to go for Capital Distribution over taking the dividends. Plus every year I delay it my offset mortgage a/c interest saved would be £758.. hence need it out asap.

Actually tax would be c£1.8k hence sooner over later.