Share this content

Anti-Phoenixing/winding up of property company

What are the implications of the anti-phoenixing laws on the winding up of a property company

Didn't find your answer?

Hi,

Can someone double check that my understanding is correct regarding the anti-phoenixing legislation and property companies please? My client has a BTL property company, and they want to wind up the company. They have been selling off the properties within the company recently, and all but one of the properties have been sold (the client wants to keep this personally). So there will be a distribution of the funds and also a distribution in specie of the remaining property. Technically due to the anti-phoenixing legislation, for the capital distribution to be subject to CGT rather than income tax, he could not let out this property for at least two years after the winding up, as it would be participating in the same trade.

It seems to me that the client should either sell the property prior to the wind up (which I believe he would not like to do) or avoid letting out the property for two years after the wind up (it’s not worth looking at the dividend vs CGT argument!).

Many thanks for anyone's confirmation on this,

J

Replies (10)

Please login or register to join the discussion.

avatar
By MBK
17th Aug 2017 13:40

The answer is - nobody knows!

You should read the guidance at CTM 36300 and subsequent pages, but I'm not sure it will lead you to a clear answer.

The only way to be safe, as you suggest, is no renting for two years after the date of the distribution (not the date the winding up commences).

Thanks (1)
avatar
By JD Foster
17th Aug 2017 14:21

Thanks for confirming MBK - as you have said, I'll stick with the advice that in order to be safe from the anti-phoenixing legislation, they would have to avoid renting the property out for 2 years after the distribution.

I'll give the guidance a full re-read any way just in case.

Thanks (0)
avatar
By Justin Bryant
17th Aug 2017 14:50

Assuming this is a liquidation, these are now potentially caught under TiS regardless of phoenixing, so you should try get clearance.

Thanks (0)
Replying to Justin Bryant:
By Ruddles
17th Aug 2017 16:47

I wouldn't bother. And I wouldn't bother waiting for 2 years until renting again. There is nothing in the OP's post whatsoever that leads me to the conclusion that this is being done for tax reasons. In fact, in liquidating the company, he's creating a tax charge that could otherwise have been avoided. It's time that HMRC were put to the test.

Thanks (0)
Replying to Ruddles:
avatar
By Justin Bryant
17th Aug 2017 17:06

Well, pretty much all TiS specialists would disagree with you there, as there is now a real risk of counteraction (if the TAAR does not apply) and you could possibly be sued if that happened without warning the cleint. See for example:
https://www.taxation.co.uk/Articles/2017/08/01/336774/company-wind-ups-a...

Thanks (0)
Replying to Justin Bryant:
By Ruddles
17th Aug 2017 19:18

Whilst I respect Pete Miller's views, he is hardly "pretty much all TiS specialists"

And who said that I wouldn't warn the client? In this case, though - and based only on the info in the OP - my advice to client would be that whilst any liquidation is potentially subject to a counteraction notice HMRC wouldn't have a cat in hell's chance of successfully arguing that the liquidation in this case is tax-motivated. Go ahead and sue me if I'm wrong.

Thanks (0)
Replying to Ruddles:
avatar
By Justin Bryant
18th Aug 2017 10:42

I think you are in the minority here, as every single tax barrister I have spoken to on this point recommends getting clearance.

Thanks (0)
Replying to Justin Bryant:
By Ruddles
18th Aug 2017 11:26

There's no doubt that asking for, and obtaining, clearance would not be an unwise thing to do. I just happen to consider that on the facts as presented in this case it would be unnecessary. Have you spoken to tax barristers about the OP's particular situation?

I suppose, though, that if clearance were to be sought on every single liquidation, it might encourage HMRC to issue clearer guidance on when they consider TiS will and will not apply - so that in itself would be good reason to make an application.

Thanks (0)
Replying to Ruddles:
avatar
By Justin Bryant
18th Aug 2017 19:45

The tax barristers all said that it would be wise to seek clearance for all liquidations (so that would include this one).

Thanks (0)
avatar
By MBK
18th Aug 2017 13:29

Trouble is that a TiS clearance is not a TAAR clearance - which is not available. So getting such a clearance doesn't actually help you with your original question.

Thanks (0)
Share this content