Tax Planning to release accumulated profits within business

The background

Mr and Mrs H had a business set up as a partnership which comprised a commercial property portfolio with a trading business. The income generated was far in excess of that which was required to maintain their lifestyle and so exposed the excess income to 40% income tax and moving towards 45% income tax. They were also looking towards retirement and wanted to release cash from their business to purchase a holiday home. In addition they wanted to protect their estate against Inheritance tax and provide for their three children who worked within the business.

What we did

The trading business was incorporated and the building the business from was transferred into this business along with one further building which was rented to three unrelated businesses. This created a directors loan account of £800,000 which incurred Capital Gains tax which with entrepreneur relief resulted in a 10% CGT charge on the gain. The trading business elected to make a pension contribution which with carry back enabled a contribution of £100,000 for each Mr and Mrs H. They elected to settle this contribution with the building which was rented to the third party. The children were made members of the newly established Astute Super SSAS.

What we achieved

Whilst there was a CGT charge on the gain of £30,000, the pension contribution benefited from Corporation tax relief of £40,000. The ongoing rent which was £30,000 per annum and had previously been taxed at 40% was now free of tax so saved £12,000 per annum. The Buildings had been sheltered from IHT resulting in a saving of £320,000. The children benefited from the features within the Astute Super SSAS to allocate growth in the pension value to any member class to build funds for the children.

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