HMRC recently published a consultation document on company distributions which closed for comments on 3 February 2016. Draft legislation in respect of a number of proposed changes to take effect from 6 April 2016 was published alongside the consultation.
The main aim of the consultation was to:
- understand whether parts of the distributions legislation are providing an incentive to shareholders to carry out transactions that in effect convert income into capital for tax reasons
- understand how these measures might be addressed
- investigate whether any change would negatively impact normal business transactions.
There are several areas included in the consultation including distributions on a winding up under a members’ voluntary liquidation (MVL). In these circumstances, a company owner might choose to retain profits and cash within a business that they know will be liquidated in order to benefit from lower capital gains tax (CGT) rates rather than pay a pre-liquidation dividend.
If you are considering a MVL and are uncertain as to whether a capital distribution made before 6 April 2016 will qualify for entrepreneurs’ relief (i.e. 10% rate of CGT) our team at Bedrock may be able to assist you.
