26th January, 2016

Members’ Voluntary Liquidations and HMRC

A Members’ Voluntary Liquidation (MVL) is a tax efficient method of realising profits from a company following ceasing to trade. As distributions from a MVL are taxed on shareholders as capital gains, Entrepreneurs’ Relief, (ER), often becomes available typically reducing the rate of tax paid to 10% in addition to the individual’s personal allowance. This compares well to the dividend tax rate of 25% for higher rate tax payers and the benefit increases if they are additional rate tax payers.
HMRC has issued a consultation document which questions whether distributions from liquidations from 2016/2017 onwards should be taxed as income rather than capital gains. If implemented, this would disadvantage shareholders looking to utilise a MVL to realise profits from their company.
The document implies that if the shareholder has no involvement in the same trade as the liquidated company in the following 2 years, the tax treatment post April 2016 should remain as it has always been. The indication is that the future intentions of HMRC might be to attack what they think is an unfair means of tax avoidance.
Directors and shareholders may wish to commence a MVL sooner rather than later so that funds can be distributed before April 2016.
For more information please contact Mark Goldstein on 01737 830763 or mark.goldstein@mgacr.co.uk

© Mark Goldstein Associates Ltd 2021. All Rights Reserved.