Hi Vincent
Very interesting points and I think it's worth teasing this out. It's got more complicated since I first advocated clearly against leaving cash in a company.
I have copied this to a new thread and made it a key post as the issue will apply to a lot of people.
First of all, it's important to point out that if people leave profits in their company, they will pay Corporation Tax at 12.5% on them.
If they subsequently pay the cash into a pension scheme. That would be a terrible waste of tax.
If they subsequently pay themselves salary out of it, again it would be a waste of tax.
If you have a plan to wind up the company in the medium term - say 5 years, the proceeds will be subject to Capital Gains Tax at 33%. So there is not much saving there. In the meantime, the net cash could have been used to pay down the mortgage and get a tax-free return equal to the mortgage rate.
Should they plan for Termination payment pension funding or Retirement Relief?
If they are approaching retirement and expecting to retire this is worth considering.
But they will have given up 12.5% of it in Corporation Tax.
Would it not be better and simpler to put it into a pension?
If they are in their 30s, I don't think that they should be planning for this.
Should they apply for Entrepreneurial Relief?
So they pay 12.5% Corporation Tax.
Then if they qualify for Entrepreneurial Relief, they will pay 10% CGT.
Clearly 22.5% is a lot less than 53% in income taxes.
I still think it would have to be on the medium term horizon to plan for it.