Can we tell a client how much cash the company should keep?

Yes, and you are the right person to do it. Sizing a working capital buffer is accountancy work: a quarter's overheads, the VAT and corporation tax reserves, committed capital expenditure, the headroom a lender requires under a covenant. None of that is a regulated activity, and nobody is better placed to put a number on it than the firm that prepares the accounts. What changes character is the next question. Once the conversation moves from how much the business needs to what the surplus should do — a deposit, an investment, an employer pension contribution — it becomes regulated advice, and it belongs to a firm authorised to give it.

How much cash is too much for business property relief?

There is no statutory figure, which is precisely why the question gets left alone. Section 112 of the Inheritance Tax Act 1984 excludes any asset that was neither used wholly or mainly for the business over the previous two years nor required at the time of transfer for its future use. In Barclays Bank Trust Co Ltd v IRC, decided in 1998, a company held around £450,000 in cash; roughly £150,000 was accepted as required by the business, and the remaining £300,000 was treated as an excepted asset. The test is need and documented future purpose rather than a percentage, so the defence is contemporaneous evidence rather than a ratio.

Does surplus cash put Business Asset Disposal Relief at risk?

It can, because the relief requires the company to be a trading company — one carrying on trading activities without substantial non-trading activities. HMRC's guidance has long read substantial as broadly 20% of the relevant measures, although the Upper Tribunal in Allam v HMRC in 2021 declined to treat that percentage as the governing test. Cash alone rarely fails a company on its own, but cash sitting alongside an investment property, a share portfolio or a loan to a connected company is how the total quietly accumulates. With the relief rate now 18% on qualifying gains from 6 April 2026, the cost of failing the test has risen.

Our client is keeping it for a possible acquisition. Does that protect it?

Not on its own. That was very nearly the argument the executors ran in Barclays Bank Trust Co Ltd v IRC: the cash was held as a contingency in case an appropriate business opportunity arose. It did not save the £300,000. A general intention to be ready for something is not the same as an asset being required for the future use of the business, and the distinction turns on evidence created at the time rather than an explanation offered afterwards. Board minutes naming a target, a heads of terms, a quotation for plant, a lender's term sheet — those are the things that turn an intention into a documented purpose.

Is raising this the same as recommending an investment?

No, provided you stop where the regulated work starts. Observing that £440,000 appears to exceed what the business needs, that it currently attracts no relief on death, and that nobody has taken a decision about it, is professional judgement about a client's balance sheet. Naming a product, a provider, a fund or a contribution figure is not, and an accountancy practice without the relevant FCA permissions cannot do it. The clean version of the conversation is to state what you can see, ask whether anyone has looked at it, and with the client's consent introduce someone who is authorised to. Equity & General, FCA number 474163, does the regulated half.

Salary, dividend or pension: taking money out of your limited company

The decision, stated properly

Money in a limited company belongs to the company, not to you. Getting it into your own hands means choosing a route, and each route has a different cost and a different consequence.

Most owners and accountants work through two of them. The third tends to be mentioned and then left, usually because answering it properly needs someone who is not in the room.

The three routes

Salary. Deductible for the company. Subject to income tax and to national insurance, both yours and the company’s. It maintains your national insurance record, which matters for the state pension, and it is the route that supports a mortgage application most easily.
Dividend. Paid out of profit the company has already paid corporation tax on. No national insurance, and taxed at dividend rates rather than income tax rates. It requires distributable reserves, so it is only available if the company has made profits.
Employer pension contribution. Paid by the company, normally deductible, no national insurance, and no income tax on you when it is paid. Inaccessible until you reach the minimum pension age.

What it costs, in principle

Precise figures change every year, so what follows is the shape of the thing rather than a calculation.

Salary reduces the company’s profit before corporation tax, then attracts income tax and national insurance from both you and the company. It is the most expensive route in total tax for most owner-directors, and the one that does most for your state pension record and a mortgage application.
Dividend comes out of profit that has already borne corporation tax, then attracts dividend tax in your hands. No national insurance, which is why most owner-directors take a small salary and the rest as dividend.
Employer pension contribution reduces the company’s profit, attracts no national insurance and no income tax on you when paid. The cost is that you cannot reach it until minimum pension age.

Your accountant can run your actual numbers in minutes. The useful thing is to ask for all three, not the two you normally see.

It is a trade, not a ranking

There is no route that is simply best. Salary and dividend give you the money now and cost more tax. A pension contribution costs less tax and gives you the money later.

Which trade is right depends on things a tax calculation cannot see: how old you are, what else you have, what the money is for, whether you are about to buy a house, whether the business is likely to be sold. That is why the answer changes year to year for the same person.

The things that change the answer

Two owners with identical companies can correctly take different decisions, because the tax position is only part of it.

Age. The closer you are to being able to draw a pension, the less the access constraint costs you.
A mortgage in the next two years. Lenders assess salary and dividend differently, and a pension contribution reduces what they see.
Whether the business might be sold. Funding while the company is still trading and profitable is a different proposition from doing it afterwards.
What else you hold. Someone with substantial savings outside the company can afford to lock more away than someone whose entire net worth is the business.
Other shareholders. Dividends normally follow shareholdings; salary and pension do not, which sometimes settles the question on its own.

Where owners most often get it wrong

Taking the same as last year. Profit doubles, drawings stay flat, and the difference quietly accumulates on the balance sheet as a problem for later.
Ignoring the pension entirely. Often because it feels like money disappearing. For someone within fifteen years of stopping, it is usually the largest missed opportunity in the whole conversation.
Drawing everything. Leaving the company with no buffer, and the owner with a personal tax bill they had not planned for.
Deciding in March. The options narrow considerably in the last weeks of a tax year.

Questions owners ask

Can I just leave it in the company? You can, and many do. It is still a decision, and cash well beyond what the business needs interacts with several tax reliefs.
Is a director’s loan a way of taking money out? It is a way of taking money temporarily. There are tax charges if it is not repaid in time, and your accountant will want to talk about it before rather than after.
Should I put my spouse on the payroll or the share register? Sometimes sensible, often done badly. It has to reflect something real and it needs your accountant’s input before, not at the year end.
When should I decide? Early in the year, not in the last fortnight of it. The options narrow considerably at the end.

What to do next

Raise it at your year-end meeting rather than at the year end. Ask your accountant to show you all three routes side by side rather than the two you usually see, including what the pension route would cost the company and save you.

If the third column turns out to be worth taking seriously, how much and where it goes is a regulated advice question, and your accountant can introduce you to somebody who can answer it.

This article explains how the rules work. It is not advice about what you should do, and it does not take your own circumstances into account. Your accountant is the right place to start, and they can introduce you to a regulated adviser if the answer needs one.

Taking money out of your company