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Extracting cash from a UK company tax-free
Please note that taxation and national insurance is a complex subject and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.
Q. I am the owner of a UK company, which has £500,000 cash in it. I want to move to France having bought a French property with this money. What is the simplest way to do this ?
A. The simplest way is for the UK company to buy the French property. That way you do not have income tax or national insurance to pay as you will not have drawn the cash in salary or dividend.
Q. Are there any tax drawbacks to this method ?
A. Yes, and they are pretty considerable. If you are planning to live in the property, the French equivalent of private residence relief for capital gains tax (which should otherwise apply) will not apply. French capital gains tax will thus be charged at 33?%. Assuming the company stays UK tax resident - difficult if you move to France, own all the shares in the company and/or direct it - benefit-in-kind issues will arise. Even if company control stays in the UK, you might be regarded as operating a company office through the property and taxed on that basis. If the company does become French tax resident then it will be subject to a raft of French corporation tax and national insurance liabilities - so although superficially attractive, this method is one to avoid.
Q. But in that case I will presumably have to extract the cash via a dividend and/or salary, which will be taxed at around 40% (£200,000 on my £½m) ? I will then have much less money to spend on French property !
A. Not necessarily ! This is where tax planning, which could save you the £200,000, comes in. You can do this quite simply by relying on the UK-France double tax treaty without involving any trusts or tax havens.
Q. Tell me how to do it.
A. Your UK company is able to undergo a simple share reorganisation which will result in it being owned by a French "Société Civile Immobilière". These SCIs are fairly common in France and cost about €2,500 to fully set up.
Q. Who owns the shares in the SCI?
A. You do, outright. No trusts or other devices are required. The SCI is viewed by the UK revenue as a limited company because it does not recognise the SCI's tax-transparent status in France. This is very clear from the tax inspector's manual.
Q. Where is the SCI tax resident?
A. In the UK, because you are resident here and you have total control over it. You then pay a dividend from your company to the SCI, which is a tax-free distribution because they are both within a 100% UK group.
Q. How does this help me ? If I then take money out of the SCI it is just like taking money out of my UK company.
A. Correct. But things change when you go to live in France. Once you become French tax resident then the central management of the SCI moves to France (with you) and it becomes a wholly French company. In France it is not treated as a limited company. It is treated as a partnership; i.e. for tax purposes the French revenue looks through it. This means you can withdraw the money from the SCI tax-free in France as it is simply your money.
Q. So would I buy the French property using the SCI?
A. You could but we recommend you take the money out of the SCI and buy the French property in your own name (unless there were another reason to own the property through an SCI). The SCI can then be wound up.
Q. How quickly can this be done ?
A. As soon as you are prepared to move to France we can process the paperwork.
Q. Is it necessary to remain outside the UK for an extended period ?
A. Not necessarily. If you move to France, your income is usually assessed on a split-year basis so technically you need only go to France for a short time. However, we would recommend that you remain resident of France for at least one whole UK tax year. The capital gains tax rules requiring you to be out of the UK for at least 5 years do not apply as the money is extracted as income, not capital.
Q. Are there any caveats ?
A. Yes. This must be put in place carefully with professional advice. Anyone who "tries this at home" does so at their own risk. But the advantage of it is that it does not involve trusts or tax havens or other complex devices. There are also no ongoing costs.