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UK Asset Purchase proceeds extraction

L

Luxxxtino

New member
Jun 4, 2020
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#1
Hi all,

I'm about to sell my online brand (within a LTD company) as an asset purchase deal.

Wondering if you can see any initial red flags with this plan:

If I left the UK for the UAE in Year 0, the LTD company received £1m for the sale of the brand and then paid me (a director) a salary of £1m all within Year 1, would this leave the taxable profit at £0 and thus reduce the tax bill for the deal to zero?

I would then stay in the UAE for c.5 years

Perhaps I'm missing something...

Thanks
 
#2
Abnormal salaries risk being disqualified and can instead be considered dividends. If that were to happen in your case, that would leave the buyer with a tax bill of corporate income tax for either your whole one million or whichever part of it the HMRC deems would have been a reasonable salary.

One million GBP/year salary is not completely unheard of but it wouldn't make sense for a business that was just sold for one million. Especially when you combine it with the new one million GBP/year salaried CEO moving to Dubai, a well known tax haven currently on a major international grey list.

If the HMRC at any point catches wind of this, it would an easy win for them.
 
#3
With an asset sale, the company that sells the asset will have to pay corporate tax on the gains, unless you carry over any losses from the previous years.

In the case you mention it will also look mightily suspicious that your salary has gone up a lot in the year that you ceased to be a tax resident. If they decide to audit, they may question the fact that you are not a UK tax resident since you will continue to be employed by the same UK company. In any case NI contributions are usually due for at least 1 year following you leaving the country if you are still on payroll.

The bottom line, you may be able to pull off what you describe, or you may get audited and be stuck paying Corporate Income tax + Payroll tax + NI contributions on the amount. I'd estimate your tax burden for 1m to be around 30-50% depending on how they deem the income.

In any case, you will want to move before April 5 and for the sale to happen after that date as to not need to apply for a split year treatment. Furthermore, with a salary of over 150k you will need to do a self-assessment, which will further increase your risk as that is another opportunity to have a look at your return for HMRC.

Finally, I would suggest you speak to a qualified accountant who can advise you on how to best structure this. This is a major life event and it is quite customary to get this kind of advice and act accordingly.

Lastly, I will add that asset sales are generally bad for the seller for a whole host of reasons. One of them being the higher tax burden. It is therefore, quite common to negotiate a higher sale price to compensate for this.
 
#5
Update to the situation - the asset purchase will go ahead and we will aim to complete by end of March, meaning 19% corporation tax will be paid. Then this will be redistributed to myself as a dividend in the following tax year, which should be considered disregarded income as I will be a UAE tax resident that tax year and will remain so for at least 5 years. Thank you all for your assistance!
 
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#7
That's certainly the plan. Should be c.£300k left in the LTD company after retained earnings are depleted for dividends so going to speak to a tax advisor about whether this kind of amount can be extracted through a salary next tax year and the NIC concerns of doing so (potentially need to continue paying for the first 52 weeks in Dubai). Cheers mate
 
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