The changes in the dividend tax rates which come into effect from 6 April 2016 are widely known and publicised and we have written about this in our Summer Budget update. However, HMRC is at it again, this time looking into ‘Distributions in winding up’. After the crackdown in Capital Distributions under Extra-Statutory Concession C16 (ESC C16) which took effect on 1 March 2012, there was a marked increase in Members Voluntary Liquidations (MVLs) as the only remaining way to extract capital from a Company. An MVL is a solvent winding up of a Company whereby the distribution to shareholders from the winding up could be subject to 10% tax on the distribution (assuming that you qualify for Entrepreneurs Relief). Now the government is closing the loop on this with a proposed targeted anti-avoidance rule which would treat a distribution after 6 April 2016 from a liquidation as an income distribution where;
- An individual receives a distribution from the winding up of a close company in respect of shares held. (Close company is commonly defined as a UK resident comapny with five or fewer participators (shareholders) or any number of participators are directors)
- Within 2 years the individual continues to be involved in a similar trade or activity
- A main purpose of these (entire) arrangements is to gain a tax advantage.
If you are thinking about a MVL then the time to act is now and we urge you to get in touch with us if you require further information.