The Government has launched a consultation document with the intention of changing the tax status of distributions made in a solvent liquidation. Their aim being to close the tax "loophole” that allows individual shareholders being paid their capital monies via a solvent liquidation to take advantage of lower tax rates.
The Government’s intentions are to change the status of any distribution from being a capital payment to being an income payment. This could see individual tax payers seeing a rise in the tax from as little as 10% up to more than 35%. Furthermore there are threatened proposals that will set minimum conditions, which if met, will force the payments to be treated as income and not capital under general anti-avoidance rules.
How Does this Affect Me?
Shareholding companies will not be affected and the proposals are aimed at the solvent liquidations whereby a company has allowed a build up of monies in its coffers and is then converted to capital as part of the solvent liquidation process. The proposals are also clearly aimed at those who set up companies to run individual projects and then the profits from that project are removed as capital as part of the solvent liquidation process.
Do you need to worry? The proposals are under consultation and the consultation period ends on 03 February 2016, however it is expected that these proposals will come into effect and possibly as soon as 06 April 2016. For those already involved in a solvent liquidation it sets a back stop to make a distribution but it also provides a deadline for those seeking to make tax arrangements for the tax year 2015/2016.
Anyone genuinely closing a business due to cessation of trade is unlikely to fall prey to the new proposals, they are clearly designed to prevent those using it as a mechanism to avoid paying higher rates of tax. Notwithstanding the new proposals it may still be advantageous to use a solvent liquidation to remove monies from a company that is no longer required.
The Government consultation document can be downloaded from:
MW Can Help
If you are considering a solvent liquidation then get advice from a professional, our specialist insolvency solicitors have the ability to provide you with the assistance you need. At McMillan Williams Solicitors Limited we have a team of solicitors dedicated to helping YOUR business.