Liquidations & other capital payments may be subject to income tax

09.01.2016

<p><span style="font-size: small">One of the anti-avoidance measures announced in the Autumn Statement on 25 November was to introduce legislation to counter the distribution of income accumulated in a company to the shareholders in a cap...

<p><span style="font-size: small">One of the anti-avoidance measures announced in the Autumn Statement on 25 November was to introduce legislation to counter the distribution of income accumulated in a company to the shareholders in a capital form, potentially subject to the 10% capital gains tax rate with the benefit of entrepreneurs’ relief. This is a much lower rate than the rate of income tax on dividend payments, particularly when the new higher dividend tax rates are introduced in 2016/17.</span></p>
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<p><span style="font-size: small">The anti-avoidance legislation is now included in the draft clauses to be included in Finance Bill 2016 and, if enacted, will apply from 6 April 2016. The proposed changes appear to go much further than we originally thought and potentially catch schemes of capital reduction and even certain situations where a company buys back shares from a shareholder. It is hoped that the changes will not apply to genuine commercial transactions.</span></p>
<p><span style="font-size: small">If you are considering closing your company down and distributing the retained profits it may be advantageous to do so before 6 April 2016. If so, you should contact us as soon as possible so that the transaction can be completed before the new rules take effect.</span></p>
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