Capital distribution in specie

Capital distribution in specie

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In the case of an ongoing trading company, a transfer of a property to its shareholders would be treated as a sale by the company of the property at market value, with the shareholders treated as acquiring at the same market value.

Does the situation change where the transfer of the property is made as part of a liquidation of the company? Can/should we treat that transaction as the property representing proceeds for the sale of the shares?

Many thanks.
Lawrence McAulay

Replies (3)

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By gbuckell
17th Oct 2007 12:03

Still capital gain
The capital gains position is the same, i.e. the company is deemed to sell at market value.

The only difference is the tax position of the shareholder if he does not pay for the property (or he pays less than market value). In the first case the distribution is income liable to higher rate income tax. In the second case the distribution is capital liable to capital gains tax.

Of course in either situation, but more likely in the first, if the individuals are also employees or directors, HMRC may argue that the difference is a BIK rather than a distribution.

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By AnonymousUser
17th Oct 2007 12:15

A liquidation in specie...
... is two transactions:

(i) a disposal by the company of the assets distributed to the shareholders in the liquidation. This disposal by the company is deemed to take place at market value.

(ii) a disposal by the shareholders of their shares in consideration of a capital distribution equal to the market value of the assets received .

So two separate disposals and two separate capital gains but both for consideration equal to the market value of the assets distributed in the liquidation.

A distribution in a liquidation is never an income distribution.

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By AnonymousUser
17th Oct 2007 13:38

Tax rate
Tax on the company is likely to be at 30% because it is in liquidation. Doesn't exist for carrying on a trade etc and so is a close investment-holding company.

The rate on individuals will be their own rate of tax. Business asset taper, if it existed at the date ofliquidation, may (or may not) be watered down for a non-business period during the liquidation. The exact answer will depend upon what has happened in the liquidation.

Final word, how is the company paying the tax? Does it have the funds.

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