Many self-employed taxpayers in the UK operate through UK limited companies.
The usual strategy is to take a small salary and minimal dividends and to build-up a balance of retained profits in the company, with the intention of liquidating the company at some future date and extracting those profits as a capital distribution, subject to Capital Gains Tax and eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). This can allow the extraction of up to £1 million of profits with no more than 10% tax being paid. However, that strategy is undermined if you move from the UK to Australia.
What many taxpayers don’t realise is that for these types of companies, the tax residence of the shareholders and directors can impact the residence of the company, and this can have a number of tax impacts, which can be problematic, without careful planning.
The other issue that can catch the unwary is that although the UK treats profits extracted on liquidation as capital, and subject to Capital Gains Tax, Australia treats them as deemed-dividends subject to Income Tax, and that can mean that your hard-earned retained profits are taxed at 45% in Australia instead of 10% in the UK.
Your Fairway team can help you to plan your move, ensuring that your company profits are extracted in the most tax-effective way.
