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Distribution of asset in specie on liquidation

Does anyone have experience on HMRC's new thinking?

First liquidation client for a couple of years.

In the past, where there has been an overdrawn loan account, this has been distributed as an asset in specie as part of the liquidation process, with the value being taxed as a capital gain. I have heard that HMRC have a new practice of challenging these distributions as income dividends, rather than capital, with the resultant increase in tax payable.

Does anyone have any experience of this and able to enhance on how persistant HMRC are being about this?

Thanks.

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23rd Apr 2018 16:51

Distributions in excess of £25,000 other than by way of a formal liquidation are as a matter of law taxed as income. It’s not a new HMRC practice, it’s a (relatively) recent change in the law. Is that what you are referring to?

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to johngroganjga
23rd Apr 2018 19:21

Thanks, John. No, it's not the new'ish £25K non-liquidation capital distribution limit.

In the past, it has been standard practice for Insolvency Practitioners to distribute overdrawn loan accounts "in specie" (i.e. in non-monetary form via a paper transaction), rather than the director repaying the loan in cash and then receiving a distribution of the cash balance back. This has been afforded capital treatment but now apparently HMRC are trying to tax as income dividends.

My last liquidation client was a couple of years ago so I'm not up with this new practice, so was wondering if readers had recent experience/knowledge.

Thanks.

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24th Apr 2018 04:23

Edit: posts crossed

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24th Apr 2018 13:02

I have seen two cases of this within the last 12 months or so. HMRC backed off in both instances.

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