Proposed changes to the company distributions
HM Revenue & Customs are introducing legislation which is expected to come into force on 6 April 2016 that could have a substantial and detrimental effect on the benefit shareholders receive in a solvent winding up.
At the moment distributions to shareholders from a solvent winding up are taxed as a capital receipt in the hands of the shareholder, rather than income. If Entrepreneur’s Relief can be claimed then this means the funds are taxed at 10% rather than an effective rate of tax of over 50% in some cases.
If the new legislation is approved (consultation ends on 9 February) then such funds will be treated as income if:
• The distribution is received from a close company (companies that are controlled by five or fewer shareholders), and
• The individual is involved with a similar trade within 2 years of the distribution, and
• The main purpose of the winding up is to secure a tax advantage.
So, if this is likely to apply, shareholders should take steps to wind up companies before 5 April 2016 and preferably as soon as possible for the Liquidator to have time to deal with the practicalities of winding up and distribution.
If you or any of your clients wish to discuss any issues arising, or need assistance in winding up companies then please contact Filippa Connor or Ruth Duncan at this Company.
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