One of the main reasons for using a Members Voluntary Liquidation (“MVL”) was to save tax. It meant that a final distribution on the winding up of a limited company could be taxed as a capital gain at just 10% rather than as income which could be taxed at rates of up to 45%.
A new targeted anti-avoidance rule (“TAAR”) will be introduced from the 6th April 2016. If a winding up has the following three conditions the capital distribution will now be subject to income tax;
- The company is defined as a ‘Close Company’ (broadly five or fewer shareholders).
- Within two years the person (or a connected party) who received the capital distribution starts again in the same or similar business.
- One of the purposes of the MVL was to avoid income tax.
With the new increased dividend rules applying from the 6th April 2016 there has already been a rush of companies wanting to get their money out and this will only add to the need to act sooner rather than later.
These new rules are clearly going to affect a number of companies, but in particular property developers using single purpose vehicles who may have a series of development sites in different companies.
If you would like further guidance on these changes or feel your business would benefit from rescue or restructure, please contact us.