Extracting funds from the family company

The question of how best to extract funds from a family company is central to much of the tax planning that can be undertaken for a company and its shareholder directors. Potential benefits of extracting profit from the company now as against retaining it within the business include:

• the current low income tax cost of extracting funds (income tax rates may rise in the future). If the funds are required by the company as working capital, they can always be lent back to the company and then repaid in the future tax-free
• the potential double tax charge where profits are retained; that is, taxing any appreciation in value both in the company and when the value is realised by the shareholders, perhaps on the sale or winding up of the company.