Retirement, Family Shareholders and Profit Extraction.

If you’re considering retiring from your company and wish to pass it down to the next generation whilst making profit on your shares, just how should you go about this?

A hopeful situation would be that your company has been successful and the value of your shares has grown. But how do you extract your profit whilst paying minimum tax?

One solution would be for your company to buy your shares; this also negates the issue of whether your shareholders are in a position to buy you out. When a company buys its own shares it is legally required to write to the HMRC detailing the transaction, this is to minimise tax-avoidance schemes. Your resulting gain would need to be taxed as either capital gain or as income distribution such as dividends. You can ask HMRC about this in your letter but capital gains treatment is usually preferable assuming entrepreneur’s relief will apply as the rate of tax is 10%.

Depending on your circumstances it may be worth considering selling your shares in instalments. If you are retiring you could set up instalments over the next 10 to 15 years therefore minimising the tax you will pay at our current tax rate.

If you are married and your partner only has a modest income, you could consider transferring half your shares to take advantage of their tax-free allowances.

When considering selling your shares to your company it is always a good idea to discuss your plans with your accountants and financial advisors as assuming capital gains would be the most tax efficient can be a costly mistake.