The new distribution rules from 6/4/16 (s35 Finance Bill 2016) state:
at any time within the period of two years beginning with the date on which the distribution is made—
...
(c) the individual, or a person connected with him …, is a participator in a company in which he … has at least a 5% interest and which at that time—
(i) carries on such a trade or activity, or
(ii) is connected with a company which carries on such a trade or activity, or
(d) the individual is involved with the carrying on of such a trade or activity by a person connected with the individual.
Am I reading incorrectly in thinking this means liquidation distributions will be caught where a relative (e.g. brother in law) operates within the 2 year window as a limited company IT contractor, but who may otherwise have no relationship with the taxpayer (who lets assume was an IT contractor)? Not sure how widely to interpret 'such a trade or activity'.
Replies (6)
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Why is it outrageous?
D seems to offer a pretty clear get-out in your circumstances. It is of course subjective but it would be a brave Inspector that argues that your client was winding-up for tax purposes in the circumstances that you outline.
Yes, but then there would be all sorts of schemes to try and side-step the legislation using connected persons.
For example, I transfer the shares in my trading company to my brother. He holds the shares (and is a director of the company) for a year, and the company is then put into MVL.
He gets a £1,000,000 distribution which is pure gain, and on which he pays tax of £100,000.
He kindly makes a gift to me of £900,000.
I set up a new company doing exactly the same thing as the old company the day the the old company is put into MVL.
Do we think this should get caught?
And ...
And it is just possible that an individual may have a legitimate, non-tax, reason for winding up one company and starting another. Where would he be without the protection of condition D?