Pubs go limited to avoid paying taxes

More people are choosing to run their pubs as a limited company to avoid paying

certain taxes, according to agent Fleurets.

However, although there are several advantages to setting up a limited company, there are also many pitfalls.

"It's usually best to have a round-table discussion with the agent, the owner's solicitor and accountant before decisions are made," said Fleurets chairman Barry Gillham.

He uses an example of a freehold worth £5m.

"If you're selling this pub as a limited company and the shares are sold as unquoted - ie not fully listed on a recognised stock exchange - then Business Asset Taper Relief for Capital Gains Tax will result in an effective rate of tax at 10% or less. So, on £5m sale, the shareholders will receive at least £4.5m."

But if the sale is of assets - not a limited company - then the company will pay tax up to 30% on the profits before they are extracted.

"If extraction is by way of dividends, then usually a further tax charge of 25% of the net dividend is payable.

"So on a £5m profit, net receipts to the taxpayer is £2.625m - 47.5% rate of tax."

But a buyer's solicitor will expect squeaky clean tax returns, details of losses and loans to directors, among other things.

Fleurets director Martin Willis said: "If I buy the Dog & Duck as a limited company, I inherit the company as a whole - so if someone fell down the cellar and is set to sue the company, I have to deal with that.

"But if I buy it as an asset, it starts as a clean slate. So it stands that sometimes, buyers are more comfortable with purchasing an asset rather than a limited company.

"Also, on a limited company, they may not pay the full asking price up front, but opt to pay in instalments until they know nothing is coming back to haunt them."

Gillham said it follows then, that unless the company being sold is in immaculate order, there are many pitfalls.

"In our notional £5m deal it is probably worthwhile

trying to make the tax savings. If you are selling for £100,000 or even £500,000 it might be better to pay the tax, sell the pub and save the professional fees," added Gillham.