Surplus Cash and Investments Kelso : Rennie Welch

Surplus Cash and Investments

Many owner managed companies retain profits rather than distributing them in order to minimise Higher Rate Income Tax liabilities for the owner manager. Holding surplus cash or investments in the company could however result in the loss of valuable Inheritance Tax and Capital Gains Tax reliefs.

Business Property Relief (BPR) reduces the taxable value of property on which Inheritance Tax is charged. Shareholdings in unquoted companies may qualify for 100% BPR providing certain conditions are met. A surplus of cash or investments could result in the company being classified as an excluded business and the shareholdings no longer qualifying for BPR. Even if the company is not considered an excluded business, surplus cash or investments could be classified as excepted assets and excluded from receiving BPR.

Entrepreneur’s Relief (ER) is a relief that, providing certain conditions are met, reduces the rate of Capital Gains Tax payable on the disposal of a qualifying business asset from 18% or 28%, to 10%. A surplus of cash or investments could result in the company no longer qualifying as a trading company for ER purposes and the relief being denied.

Business Asset Gift Relief defers the taxation of the Capital Gains arising on the gift or transfer below market value of a qualifying business asset by rolling the gains over against the base cost of the individual or company who receives the asset, providing certain conditions are met. This can be very useful in succession planning for owner managed companies. For shareholdings in an unquoted company to qualify, it must be classified as a trading company. As for ER above, a surplus of cash or investments could result in the relief being denied.

Having a plan in place to enable the tax efficient extraction of profits can help to mitigate the issues highlighted above. Following the recent changes to pension regulations it may be worth including the payment of additional employer pension contributions as part of this plan.

An extended version of this article is available on our website.

Rennie Welch LLP accept no liability on the basis of this article and detailed advice should be obtained before entering into any transaction. If you require assistance or advice in connection with any tax matter, please contact Lynn Miller at Rennie Welch on 01573 224391 or by email at

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