What are the best options for extracting money from your company?

Business
Planning
Tax

Finding the right way to extract money from your private company is rarely straightforward, and there is no single answer that works for every business owner, or even for the same owner at different points in their career. Directors weighing up dividends, salary, pension contributions or simply leaving profit in the business face a genuinely complex decision, one that depends on personal circumstances as much as on the tax rules themselves.

This blog sets out the main routes available to UK tax resident business owners who have control, or significant influence, over their company, and who have already covered day-to-day needs through a basic salary. It focuses on what to do with the spare cash that remains once the easy decisions have been made, and it looks at when it may be better not to extract cash at all, but to restructure the business instead.

What should you consider before choosing a method?

Before choosing a method, it is worth weighing a number of factors, since the right route for one owner will not be right for another:

Accounting.
Benefits, both current and future.
Cash flow.
Other stakeholders.
Self-assessment and other compliance obligations.
All applicable taxes, including National Insurance.

The right solution requires a careful balance of each of these points and will be specific to each individual. Rather than expand on each factor in isolation, the best next step is to discuss your position with your financial/tax adviser, who can assess your particular circumstances.

Why is a director’s loan rarely the right long-term answer?

Where ‘best’ means the smallest immediate tax burden, taking a loan from the company is often the cheapest option in the short term. It brings other complications, however, including adverse longer-term tax consequences that can make loans of this kind unwise once the full picture is considered.

HMRC sets out the tax responsibilities that attach to company loans in detail, and the position depends on the nature of the loan, the amount involved and how it will eventually be settled. As with any commercial loan, the money has to be repaid, which makes this route suitable only as a short-term fix rather than as a long-term extraction strategy.

Pension, interest and rent: how do they compare?

Pension payments, loan interest and rent can each be an efficient way to extract value, though each depends on the owner having something the company can use: a history of employment, spare capital, or property.

Where those facts do not apply, these options will not help. Where they do, and where a director already allows the company to use personal money or premises, it is worth reviewing whether a market rate is being charged for that arrangement.

Few companies choose to pay pensions in practice, since doing so can bring accounting complications that put owners off. Where an employer can be persuaded to continue paying pension contributions after an individual stops working actively in the business, however, that can prove more valuable over time than remaining on the payroll in a reduced, part-time role.

Dividends, salary and benefits: which comes out ahead?

For most owners, the realistic choice sits between dividends, salary and benefits. Dividends remain the most tax-efficient of the three for most higher-rate taxpayers, because company profits have already been taxed at the Corporation Tax rate before distribution, and because Dividend Tax rates sit below equivalent Income Tax rates.

Dividend tax for 2026/27 is charged at 10.75% for basic-rate taxpayers, 35.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers, after the first £500 of dividend income in the tax year, which is covered by the dividend allowance.

Corporation Tax also affects the comparison. Companies with profits up to £50,000 pay the small profits rate of 19%, and profits above £250,000 are taxed at the main rate of 25%, with marginal relief giving an effective rate of 26.5% between those thresholds. The Government has confirmed its intention to hold the main rate at 25% for the remainder of this parliament, so the relative position between dividends, salary and benefits is unlikely to shift sharply from a corporation tax perspective in the near term.

Benefits in Kind (BiKs) can still outperform a straightforward cash bonus in many cases, since they avoid employee National Insurance, though they cannot be spent as cash and come with their own reporting obligations. A cash salary bonus typically comes out lowest of the three once employee National Insurance, charged at 8% – 10% for most earners, and employer National Insurance, charged at 15% above the secondary threshold, are both taken into account.

Because the gap between these three routes depends heavily on an individual’s total taxable income, any other BiKs already provided and the company’s own profit level, we would always recommend running the actual figures for your situation before deciding, rather than relying on a generic comparison.

Should you leave money in the company and sell later?

Where the money is not needed now, it may make sense to leave it in the company and extract value later when the shares are sold. This route defers tax until sale, and any gain is then assessed to Capital Gains Tax (CGT) rather than Income tax.

Business Asset Disposal Relief (BADR) can reduce the rate that applies on a qualifying sale, though the relief has become less generous over the last two years. The rate rose from 10% to 14% in April 2025, and again to 18% from April 2026, still against a lifetime limit of £1 million of qualifying gains.

Above that limit, or where the relief does not apply, the standard CGT rates of 18% and 24% apply, depending on how much of the gain falls within the individual’s unused basic rate band. The annual exempt amount for 2026/27 is £3,000. With the new Prime Minister’s first Budget due to take place on 28 October 2026, these rates may change.

Leaving money in the company remains attractive for many owners, but the tax advantage over extracting cash immediately has narrowed as BADR rates have risen, so this is a route worth revisiting even for owners who ruled it in a few years ago.

Is an Employee Ownership Trust (EOT) worth considering?

Where an owner is thinking about an eventual exit rather than ongoing cash extraction, selling a controlling stake to an EOT is another option to weigh up alongside a straightforward sale. A qualifying EOT sale can allow controlling shareholders to dispose of their shares with 50% of the gain free of CGT, provided the qualifying conditions are met throughout, which makes it a materially different proposition to the routes covered above. It will not suit every business, since it depends on the company being able to fund the purchase from future profits, but it is worth a conversation with a specialist Corporate Finance and Tax team before any exit or succession decision is finalised.

Separating a business without extracting cash: reserves demergers

In some cases, the best answer may not be to extract cash from a company at all. Instead, shareholders may wish to separate different parts of a business, such as a trading business and a property portfolio, whilst preserving value within a corporate structure.

One way of achieving this can be through a reserves demerger which allows certain assets, activities or investments to be separated into a different company whilst leaving the existing business intact.

Typical reasons for undertaking a demerger include:

Separating investment assets from trading operations
Ringfencing surplus cash or investments from trading risks
Resolving differing objectives between shareholders
Succession planning for family businesses
Preparing part of a business for a future sale

Unlike dividends, salaries or bonuses, a reserves demerger does not normally provide shareholders with immediate cash. However, it can allow significant value to be separated and preserved in a tax-efficient manner where the relevant legislative requirements are satisfied.

For example, a company that has accumulated significant retained profits and owns both a profitable trade and a portfolio of investment properties may wish to separate those activities into different companies. Doing so can provide greater commercial flexibility, improve asset protection and simplify future succession or disposal planning.

As demergers are complex transactions and are subject to various anti-avoidance provisions, specialist tax advice should always be obtained before implementation.

A practical checklist: what should owners do next?

Establish how much spare cash is genuinely available
Work out your marginal tax position for the year
Confirm what your company can offer beyond cash e.g. spare capital or property
Decide whether extraction or restructuring is your real objective
Consider your time horizon
Model the actual numbers for your circumstances
Take advice before acting

The right mechanism for extracting from or preserving value in your company depends on your personal position as much as on the rules themselves, and the balance between the options can shift as rates and reliefs change, as they have done repeatedly over the last three years. If you are considering how best to take money out of your company, or whether it makes more sense to restructure and preserve value instead, contact the Price Bailey tax team to talk through your options.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.

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