Up until 6 April last year, the distribution of cash to shareholders on winding up your company using a liquidator, was usually taxed as a capital gain, potentially taxed at just 10% with the benefit of entrepreneurs’ relief.
However, last year’s Finance Act introduced a targeted anti-avoidance rule that may tax such a distribution as a dividend at income tax rates up to 38.1% under certain circumstances.
HM Revenue and Customs have recently 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 winding up your company and continuing a similar trade through 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.
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