Declaring dividend from unrealised capital gain

[Judge]

This one is for the accountants on this forum.
About 7 years ago Gilligan Rowe advised me to have my company declare capital dividend for the purposes of asset protection (i.e. sticking the equity that i had in my company into a trust, as the shareholder of the company, so creditors can not reach it).
I have since been through two accounting firms, and neither raised any issues. I am now on my third accounting firm, and the accountant tells me that it is not possible to declare a dividend from an unrealised capital gain. He says a dividend can only be declared/paid from realizing equity by selling assets or making an operating profit.
Now, Gilligan Rowe sort of know what they are doing, and so does the new accountant from Delloite. But it seems that only one of them can be right in this situation. Is there anything that i am missing? Can anyone please shed some light on the issue?

Thanks.

[Harry230]

Are you sure Gilligan Rowe didn't mean to value the shares in the company at market value which would effectively take into account the unrealised gain and then sell the shares to a trust.

[Anthonyacat]

Hi Judge

It's possible both accountants are right, if your company has changed designations in the last 7 years.

7 years ago when Gilligan Rowe looked after your company it was obviously either an LAQC or a QC. These entities can distribute capital gains tax-free to shareholders, so long as a couple criteria are met. It doesn't matter whether they are realised or unrealised. This is set out directly in the IR435 (link not working, Google it) under Advantages of a QC.

When LAQCs disappeared in 2012 (from memory) you had several options to convert your company. If you converted it to a QC, you're still fine. But if you became an LTC or regular company you can no longer distribute capital gains at all, regardless of whether realised or not, unless you wind up the entity.


When in doubt, you should probably trust the advice GR give out. They're very good. Rather expensive, and a bit overzealous on structure complexity for my liking, but they won't be wrong very often.

[Eugene]

Hi Judge

It's possible both accountants are right, if your company has changed designations in the last 7 years.

7 years ago when Gilligan Rowe looked after your company it was obviously either an LAQC or a QC. These entities can distribute capital gains tax-free to shareholders, so long as a couple criteria are met. It doesn't matter whether they are realised or unrealised. This is set out directly in the IR435 (link not working, Google it) under Advantages of a QC.

When LAQCs disappeared in 2012 (from memory) you had several options to convert your company. If you converted it to a QC, you're still fine. But if you became an LTC or regular company you can no longer distribute capital gains at all, regardless of whether realised or not, unless you wind up the entity.


When in doubt, you should probably trust the advice GR give out. They're very good. Rather expensive, and a bit overzealous on structure complexity for my liking, but they won't be wrong very often.

I think I was advised, by Gilligan Rowe, that under an LTC we could distribute capital gains, possibly only realised though. ??
I wish we had converted to a QC when we had the chance instead of an LTC.
If we can't distribute capital gains under an LTC I might investigate converting to an ordinary company.

[Anthonyacat]

I think I was advised, by Gilligan Rowe, that under an LTC we could distribute capital gains, possibly only realised though. ??
I wish we had converted to a QC when we had the chance instead of an LTC.
If we can't distribute capital gains under an LTC I might investigate converting to an ordinary company.

My apologies - LTCs can in fact distribute tax free capital gains. Just not something I've had the opportunity to do yet. I had assumed that LTCs being created solely as a way of reducing tax manipulation, they would have closed that hole too.

So you see what I mean that GR know what they're talking about!

[Judge]

Anthony, thanks a lot for this. I had a sneaky suspicion that you would have the answer. Very impressive. If i am unable to to get my current accountant to make sense of this, it may be a case of fifth time lucky!

Thanks a lot!

Judge

[Eugene]

Anthony, thanks a lot for this. I had a sneaky suspicion that you would have the answer. Very impressive. If i am unable to to get my current accountant to make sense of this, it may be a case of fifth time lucky!

Thanks a lot!

Judge

Yes agree well picked up