HMRC issued a consultation document on 9 December 2015 with regard to the taxation of company distributions and new legislation is due to come into force on the 6 April 2016. This legislation is likely to have a significant impact on the taxation of distributions in a Members’ Voluntary Liquidation (“MVL”).

From April 2016, the way in which dividends are taxed will be fundamentally reformed for individual recipients. The Government believe that the changes will increase the incentive to plan for returns from a company to be taxed as capital rather than as income, attracting tax at lower CGT rates, rather than the new dividend tax rates.

The Government are aiming to introduce a new Targeted Anti-Avoidance Rule, which would prevent some distributions in a winding up being taxed as capital, where certain conditions are met and there is an intention to gain a tax advantage.

The Government are particularly concerned about the following kind of tax planning:

It is proposed that the new Targeted Rule will treat any distributions on a winding up of the company as income distributions where:

The above proposed changes, coupled with the new dividend tax rates, will decrease the return to shareholders in certain MVL situations after 6 April 2016. We have a dedicated team at LCBSG that undertake MVLs and would be delighted to assist any clients considering an MVL.

LCBSG’s bespoke online platform, My-MVL, is a specialised service which allows you to manage MVLs easily and efficiently.

Find out more by clicking here.

 

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