what's a capital distrubution (in accounting) and how is it taxed?
Edit: Yes I am a UK resident. I am contracting through an umbrella company which I am leaving this week because I am out of contract for the moment. They have offered to pay me some of my turnover through a capital distribution instead of wages/dividends as it attracts less tax. From what I gathered from the web, Capital distributions are done when companies are wound up and I don't see how they are planning to do it with me. I will ask them tomorrow but I doubt they will give me a satisfactory answer. Cheers.
Personal Finance - 5 Answers
People Answers, Critics, Comments, Opinions :
Answer 1 :
I would assume that you have received a K-1 from a partnership or S-corp that has a line that says "capital distribution" (line 16D on an 1120S K-1 and line 19 on a 1065 K-1) and that is why you are asking. The capital distribution will not be taxed as long as it is under your basis in the entity - if it exceeds basis it is taxed as capital gains or ordinary income based on the holding period. This "exceeding basis" is a more complicated issue and most likely requires that you contact a tax PROFESSIONAL (not a tax preparer in a nationwide tax prepr chain). Your taxable amount on a K-1 is made up of the other lines "flowing through" to you. If this is not the scenario of your question post more details and we can answer better. Edit: Sorry my answer was for a US entity.
Answer 2 :
What country are you in and more details please. The Revenue and Customs website should be able to help you, if you are in the UK.
Answer 3 :
If it set up correctly, a capital distribution will be subject to capital gains tax instead of income tax. This will give you access to the annual exemption (currently £7,800 I think) and also taper relief. It is likely that the underlying shareholding will be treated as a business asset so the taper relief after two years is 75%.
Answer 4 :
ask the accountants
Answer 5 :
I'm an accountant and haven't got a clue!
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