|Cash Extracted from Wound-up Firms to Be Taxed as Income|
The UK 2016 Finance Bill will impose an income tax charge on owners of close companies who liquidate the company in order to share out its assets.
At the moment, distributions on liquidation and similar events are taxed as capital gains rather than income. HM Treasury considers this is being exploited by owners to avoid tax on dividends. There is already some targeted anti-avoidance legislation to prevent this, but it does not apply in all circumstances.
The new measure, to be introduced on 6 April 2016, will charge income tax rates up to 38.1 per cent on capital distributions made from that date in some common circumstances. As well as voluntary liquidations, these include certain disposals of shares to a connected third party, and a purchase of own shares where the seller retains a significant interest in the company.
The charge will apply if three conditions are met:
The consultation on the proposed new rules runs until 3 February 2016.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Dec.15, 2015