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Closing a limited company and claiming E.R.

If entrepreneurs relief is claimed can a partnership be set up subsequently

I am hoping to 'strike off' a limited company and distribute the assets to the shareholders.  Entrepreneurs relief could be claimed to help reduce the CGT liabilities.  However the directors of the limited company want to set up a partnership to trade in a similar, but smaller,  fashion in the future.  I have read that there needs to be a two year period without trade after the ER is claimed.  Is this true?  If it is true how different does the new partnership need to be to make ER eligible for the original disposal?  Many thanks for any opinions/help.

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08th Apr 2019 12:55

Not only will the not benefit for ER, the distribution on the winding-up will be treated as an income distribution (dividend).

Depending on the net assets of the company an MVL may be needed anyway to even consider capital treatment for the distribution.

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to Adam12345
08th Apr 2019 13:03

Quote:
Not only will the not benefit for ER, the distribution on the winding-up will be treated as an income distribution (dividend).

That isn't necessarily the case. The question which needs to be asked of the questioner/taxpayer is "why?" If it's purely for commercial reasons the anti-avoidance should not bite.

Although I agree with the point about a formal MVL perhaps being necessary to secure capital treatment.

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By Maslins
08th Apr 2019 13:04

I note you say strike off, not liquidate. Are net assets of the company below £25k?

If so, then a strike off would be fine, and I believe the anti avoidance rules can't come into play (ie the client could set up a new business straight after without risk of final distributions being taxed as dividends).

If not, and a liquidation was required, then a change of business status (ie Ltd Co -> partnership) could still leave them at risk. Be aware it's not about whether or not they get entrepreneurs relief, it could stop it being a capital gain altogether, instead being taxed as dividends.

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08th Apr 2019 13:33

If the assets are low enough to secure capital treatment on a strike off then the AEA will probably cover the gain and ER won’t be in point.

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to Tim Vane
08th Apr 2019 14:14

For that reason, I'm thinking that the assets are above the CGT threshold and very possibly £25k but it'd be nice to know.

Any advice given here is bound to be coloured by the respondent's inferences.

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10th Apr 2019 12:40

Yes 2 year period for CGT treatment.
Otherwise the final payment is a dividend.

How different.. well if it was a firm of accountants and you decided to open a skateboard shop, that probably ok?

Pretend you are a tax inspector... what would you say ..now you know...

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to Tom 7000
10th Apr 2019 12:54

Quote:

Yes 2 year period for CGT treatment.
Otherwise the final payment is a dividend.


I suspect that what you meant to say was "Otherwise the final payment may be a dividend"
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