Thinking of winding up your company?

Up until 5 April 2016, the distribution of cash to shareholders on the winding up of a trading company by a liquidator was usually subject to capital gains tax, potentially at the rate of just 10% with the benefit of entrepreneurs’ relief. However, the 2016 Finance Act introduced a targeted anti-avoidance rule that may now tax such a distribution as a dividend at income tax rates of up to 38.1% under certain circumstances. The new rules apply to distributions from 6 April 2016.

HM Revenue and Customs have issued guidance in an attempt to clarify when the new anti-avoidance rule would apply.

Broadly the anti-avoidance is intended to catch situations where the old company is wound up and a similar business is carried on by a connected business. Note, however, the distribution would only be taxed as a dividend at income tax rates if one of the main purposes of the transaction was to avoid tax. This is a complex area so please contact us to discuss your plans so you do not fall foul of the new anti-avoidance rule.