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Distributions on Liquidation of Close Companies

23rd February 2016

Distributions on the liquidation of close companies may be charged to Income Tax rather than Capital Gains Tax (CGT), from 6 April 2016.  Where applicable, the tax rate will therefore be up to 38.1%, rather than 10%-28% CGT. 

An income tax charge will apply where, within two years of the distribution, the individual receiving the distribution is “involved in the carrying on of any trade previously carried on by the company” liquidated, and “one of the main purposes of the liquidation is the avoidance of Income Tax”.  This will apply whether the trade is in future carried on by a new company, through an LLP or as a sole trade. 

Where a company liquidation is contemplated, consideration should be given to whether it is possible practically and commercially to complete the liquidation by 5 April, to secure the lower CGT rates and provide greater flexibility going forward. 

Should you have any questions, please do not hesitate to contact Katharine Arthur, Head of Tax, or your usual haysmacintyre contact.

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