How to liberate cash locked up in personal assets

Going for extraction

Profit extraction can be almost as painful as a dental extraction if HMRC has its way. Usually, however you choose to take money from your company - be it salary, benefit or dividend - there will be tax and possibly NI contributions to pay.

Example. Chris, who owns his company Kamara (K) Ltd, needs cash in the region of £20,000 for the next few years. Kamara has spare funds in the bank and so could lend Chris the money interest free, but this would attract a small income tax charge. To make matters worse, unless Chris repays the loan within nine months of the year end, the company will have to pay a hefty tax charge equal to 33.75% of the outstanding loan balance.

Exchange of cash for goods

However, it is possible to take cash from a company without it counting as taxable income or a loan. The basic idea is to swap an asset that you no longer need (but want to keep) for cash, using your company as the caretaker. Most people have old items tucked away which are surplus to their requirements, perhaps as a result of an inheritance.

Transfer assets which you won’t want to use or otherwise need at all, otherwise a benefit in kind will arise. Additionally, make sure you evidence the sale properly with an invoice so that all is above board.

Valuation

The amount of cash will depend on the value of the assets transferred. Be reasonable here to avoid difficulties with HMRC and to be fair to any other shareholders. Take account of each asset’s condition, age and marketability. Research the appropriate market value by looking online.

Example. Chris has found some valuable stamp collections and paintings in his attic. He can sell these to K Ltd at their market price of £20,000 and obtain the cash but keep indirect possession of them.

To ensure K Ltd doesn’t go on to sell the assets to a third party, the sale agreement should give Chris first refusal to buy back the assets.

Is it really tax free?

Chris has made a capital disposal of assets and is liable to capital gains tax (CGT). Given the value uplift when inheriting assets, any gain is unlikely to be large and will probably be covered by his annual CGT exemption (£6,000 for 2023/24), making it tax free. Other reliefs such as the chattels exemption may also be relevant.

If the asset is something useful to the company (such as IT or office equipment) it may even qualify for capital allowances, giving a welcome corporation tax deduction.