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[Gary Marshall]

With regard to capital gains tax there is little that escapes mr brown's grubby paws, except your principal residence.

the inland revenue is also well aware of many retirement tax avoidance schemes such as passing on homes to children etc.

if you are selling up to retire there is apparently substantial retirement relief available that will reduce the bill but you'll still end up with a hefty bill, especially if you get the asking price of £1.3m for your restaurant!

[Steve Plotnicki]

Gary - For Brits, if a shareholder has equity in a company and the company dissolves and the equity is distributed to the shareholders, it is a capital gain with no tax. This might be the case for any of the restaurants mentioned or it might not be depending on how they have been keeping their books all these years.

[Gary Marshall]

Gary - For Brits, if a shareholder has equity in a company and the company dissolves and the equity is distributed to the shareholders, it is a capital gain with no tax. This might be the case for any of the restaurants mentioned or it might not be depending on how they have been keeping their books all these years.

Steve,

but we are not talking about a transfer of equity we are talking a sale which is a 'chargeable event' and as such would trigger tax payments.

i'm not a tax expert, my area has been in the past been cgt on equities, my point is though it is very hard under UK legislation to pass on any asset without losing a slug of it to the taxman, be it CGT, income tax, inheritance tax or whatever. They'll get you somewhere along the line!

[Steve Plotnicki]

But capitalized assets would be exempt wouldn't they? If WF owned their building and the business paid off the mortgage over the years, and it is sitting on its books at a value of say 500K, and they sell it for 1.3M, wouldn't the first 500K be non-taxed and distributed to them without any tax due? And wouldn't say the wine cellar inventory, at purchase price, be treated the same? Of course I might have the steps wrong, and they might have to distribute these things to shareholders first and have the shareholders sell them. But whatever recompense they get from assets with tax basis shouldn't be taxed at least until they recover the amount of the basis. Maybe some tax expert can chime in here.

[Clerkenwellian]

But capitalized assets would be exempt wouldn't they? If WF owned their building and the business paid off the mortgage over the years, and it is sitting on its books at a value of say 500K, and they sell it for 1.3M, wouldn't the first 500K be non-taxed and distributed to them without any tax due? And wouldn't say the wine cellar inventory, at purchase price, be treated the same? Of course I might have the steps wrong, and they might have to distribute these things to shareholders first and have the shareholders sell them. But whatever recompense they get from assets with tax basis shouldn't be taxed at least until they recover the amount of the basis. Maybe some tax expert can chime in here.

Yes - you are taxed on (broadly) the difference between acquisition cost and sale proceeds. So if (in your example) the restauranteur's company bought the building 10 years ago for 500K and sells for 800K then there has been a chargeable gain of 1.2m, against which they could set an amount reflecting inflation and certain acquisition and improvement costs.

Sale of the wine will be taxed as revenue rather than capital gains (as the wine was owned as part of the restaurant's trade) but the end result will be pretty much the same.

This will result in a pool of money sitting in the company which can be returned to the owner in any of a number of ways, all of which will result in another tax hit in the hands of the owner.

[Steve Plotnicki]

Taking that money from the company shouldn't be taxed because it is a capital gain. And if it is, you should be able to avoid a double tax by making a dividend of the building to the shareholder before the sale. Same with the wine. Then when you pay tax on the appreciated assets when it gets transferred out, your basis is at the stepped up amount so the sale won't cause any new tax. That should be correct I believe.

[robert brown]

Has anyone mentioned that some restaurants in London have closed for the simple reason of the inability to find staff? Nicholas Lander wrote a column in the FT about this last year. Is it still a problem?

[schaem]

Has anyone mentioned that some restaurants in London have closed for the simple reason of the inability to find staff?

Front of the house, or back? I'm always looking for new experiences, and have never lived in London before.

[Clerkenwellian]

Taking that money from the company shouldn't be taxed because it is a capital gain. And if it is, you should be able to avoid a double tax by making a dividend of the building to the shareholder before the sale. Same with the wine. Then when you pay tax on the appreciated assets when it gets transferred out, your basis is at the stepped up amount so the sale won't cause any new tax. That should be correct I believe.

Nope - will be taxed as a capital gain. Paying the building as a dividend would likely fall foul of the "abnormal dividend" anti-avoidance rules, in the unlikely event it turned out tax efficent (the way capital distributions are treated means this sort of thing will normally increase the overall tax hit)

You can't generally avoid a double tax hit in the UK in extracting profits. The Chancellor's pre-budget report just closed off one scheme often used to do this, involving offshore trusts.

[Steve Plotnicki]

So the only way to do it then is to sell your shares. That way there will be only one tax. But I'm not understanding the "abnormal dividend" rule. Do they have a rule that says dividends have to be in cash? Why can't a corporation give out any dividend they want to give as long as the receiving party pays tax on the distribution? Or why couldn't the owners of WF buy the assets for fair market value, have the corporation pay tax on that sale, and then sell the assets for cash and then they apply their stepped up basis against the purchase price to eliminate the second tax? I mean suppose they weren't retiring and they were moving to a larger location and they wanted to keep their building as the family home so they sold it to themselves? One tax or two and if the answer is one, why would it be any different on retirement?

[Clerkenwellian]

So the only way to do it then is to sell your shares. That way there will be only one tax. But I'm not understanding the "abnormal dividend" rule. Do they have a rule that says dividends have to be in cash? Why can't a corporation give out any dividend they want to give as long as the receiving party pays tax on the distribution? Or why couldn't the owners of WF buy the assets for fair market value, have the corporation pay tax on that sale, and then sell the assets for cash and then they apply their stepped up basis against the purchase price to eliminate the second tax? I mean suppose they weren't retiring and they were moving to a larger location and they wanted to keep their building as the family home so they sold it to themselves? One tax or two and if the answer is one, why would it be any different on retirement?

selling shares works great as far as the seller is concerned - only one tax hit (capital gains) and a lower rate of stamp duty. But unlikely a purchaser would do this if they just want the building , as they'd be assuming all the company's liabilities. People used to avoid this problem by selling the property into a newly created special purpose company and then selling that company to the purchaser - the idea was to take advantage of various group reliefs from stamp duty and capital gains tax on the first sale. This has gotten progressively harder over the years and as of this year's Budget I'd say is now a non-starter.

the "abnormal dividend" rule is part of a complicated anti-avoidance provision that attacks various types of transactions involving shares and other securities. It doesn't stop you paying an abnormal dividend (and paying a *building* by dividend looks pretty abnormal to me) but cancels any tax advantage you might get. That said, even ignoring this, the way capital distributions are taxed means this idea would probably result in more, not less, tax.

If the owners buy for fair market value then the company suffers a chargeable gain on the first sale (taxed broadly on the difference between acquisition price and sale price) and the owners pay stamp duty (probably at 4%). Sure, the owners don't pay any tax on their subsequent sale, but they haven't made any money either - the money is still sitting in the company. And when this money is dividended to the owners, they'll pay income tax on it. Net result: double taxation (as before) but a lovely new stamp duty hit.

There's a special capital gains tax relief for people selling their business upon retirement.

I'm taking a wild stab in the dark and guessing you're American - the US and UK tax systems have few points of commonality (and some wicked people make lots of money exploiting this).