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Liquidation and Capital Gains Tax – Rules For Directors

The primary rule – Tax is payable on any capital asset sold at a profit by the liquidator. This means that any money you make as a result of the liquidation, will be treated as taxable income.

An example of how this works

The most common asset sold by a liquidator that results in a tax bill is the sale of a freehold property. The company may have owned their site or premises for a number of years and the property may well have gone up in value compared to its cost.

On sale we would work out the capital gain due. We do this by deducting the cost of purchase plus Stamp Duty and improvements from the sale proceeds and the difference, the profit, will be subject to tax. The tax has to be paid as an expense of the liquidation so is the very first cost to be paid above all other creditors. It does not matter whether there is a loan or mortgage on the property – this does not affect the tax due.

What about other assets?

Most other assets sold do not give rise to a tax bill. Assets sold before liquidation will have crystallised a tax bill before liquidation and this is not an expense of the liquidation but an unsecured creditor – equal with all other supplier’s.

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