How to treat further distribution from liquidator?
A client made a substantial capital gain some years ago and rolled it over into an EIS investment.
The EIS company subsequently went into liquidation (not a disaster - there's actually a further gain on the EIS investment).
During 2009/2010 the liquidator made a distribution to shareholders and the client declared the resulting realised gain on his SA Tax Return, offsetting the whole of the available cost.
In October 2010 the liquidator made a further (final) distribution. Should this additional gain be declared by amending the 2009/2010 Tax Return or should it be shown on the 2010/2011 Tax Return (without any related cost), thereby getting the advantage of a further year's exempt amount for CGT?
What if the original EIS distribution had occurred in 2008/2009, so that the "window" for amending that Tax Return had already closed?
Any guidance would be greatly appreciated.
SP D3 COMPANY LIQUIDATIONS: SHAREHOLDERS’ CGT 1 thanks
Have a look at SP D3. The first paragraph includes:
"During the liquidation of a company the shareholders often receive more than one distribution. For capital gains tax each distribution, other than the final one, is a part disposal of his shares by the shareholder, and the residual value of the shares has to be ascertained in order to attribute a proportion of the cost of the shares to the distribution (unless the Inspector of Taxes accepts that the distribution is “small” and can therefore be deducted from cost)."
The final distribution is a separate disposal for CGT and any gain (i.e. proceeds less allowable costs not already accounted for in the part disposal(s) will be taxable, after any available AEA, in the tax year in which the final distribution is received (2010/11). The disposal in 2009/10 will need to be amended so as to use the appropriate proportion of the cost rather than all of it.
However, you may be able to justify leaving 2009/10 as is and have no cost set against the final distribution in 2010/11 - unlikey that the tax at stake will be much different.
Just another couple of thoughts that you may want to consider - EIS relief clawback/adjustment as a result of the EIS company liquidation; EIS relief on gain?