Two companies, same shareholders, liquidation of one

Two companies, same shareholders, liquidation...

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Suppose I was planning to invest in rental property over the next 10 years, and consider two options:

A - I create a single company, and purchase all properties within that company

B - I create two companies and purchase 5 properties in one and 5 in the other

In all cases, the shareholders in the companies are the same people, and other income means they are all additional rate tax payers.

Under option A, if say in 25 years time I sell 5 properties and want to release some capital from the company, I must do so via dividends, which if the sums are in the millions will be taxed at the recently introduced dividend additional rate of 38.1%

Under option B, I could sell all the properties in one of the two companies, then liquidate the company.  The resultant distribution to shareholders by the liquidator would be treated as a capital distribution and would be taxed at 28%

Is there any reason HMRC would seek to challenge the approach of option B?

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By Portia Nina Levin
19th Oct 2015 16:16

It depends.

If you sell all the properties from the company that you intend to liquidate to the company that you intend to keep, I would expect HMRC to serve a counteraction notice.

If, however, you sell the properties to completely unconnected parties, I would not.

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