Posted by admin - January 11, 2016 8:56 am
Entrepreneurs Tax Relief under attack
On the 9th December 2015 the government published a consultation concerning the tax treatment of company distributions.
The government has put forward a number of changes in the draft legislation that is being published in Finance Bill 2016. This seeks to prevent people, in some cases, from arranging their affairs solely to take advantage of lower tax rates.
The consultation states that the proposed legislation would:
- Amend the Transactions in Securities legislation. This is designed to prevent unfair tax advantages in certain circumstances. The amendments would strengthen these rules, and clarify certain areas; and,
- Introduce a new Targeted Anti-Avoidance Rule. This 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 proposed changes would see distributions under the following circumstances being treated as income and taxable at the tax payer’s marginal rate of income tax rather than being subject to Capital Gains Tax and attracting a reduced rate of 10%:
- Phoenixism – liquidation followed by involvement in a similar trade or activity within two years.
- Moneyboxing – liquidation with reserves having been deliberately retained, despite not being needed for commercial purposes.
- Special Purpose Companies – activities divided amongst several companies, each liquidated separately over time – will be subject to a Targeted Anti Avoidance Provision covering the situation where the individual shareholder continues to be involved in a similar trade or activity within two years of the winding up with a main purpose being the obtaining of a tax advantage. In such circumstances it is proposed that such Capital distributions would be treated as income.
The Chancellor’s next budget will take place on the 16 March 2016 so if you are considering liquidating a solvent company that may be caught by the proposed changes detailed above you may wish to contact one of our partners or a member of our specialist insolvency team sooner rather than later.
