HMRC Publish Guidance On Company Liquidations And Phoenixism

HL
Harbottle & Lewis

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Harbottle & Lewis
HMRC has published guidance on its views on the recent changes to the tax rules in relation to company windings up.
United Kingdom Tax

HMRC has published guidance on its views on the recent changes to the tax rules in relation to company windings up.

The Finance Act 2016 introduced a new Targeted Anti-Avoidance Rule (TAAR) to prevent "phoenixism" – broadly where solvent companies are liquidated so that shareholders dispose of their shares to realise a Capital Gains Tax charge rather than paying income tax on the profits that would otherwise be distributed.

The new rules will broadly apply where:

  • individuals hold 5% in the company immediately before winding up;
  • the company was a close company at any point in the two years ending with the winding up;
  • the individual received the distribution and continues to carry on the same trade (whether directly or through a partnership, or a company in which they hold at least 5% of the shares) within two years of the distribution; and
  • avoidance of income tax is the main purpose, or one of the main purposes, of the winding up.

The new rules also apply to distributions from a non-resident company that is wound up.

The new guidance can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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