My client is the sole shareholder of a trading company that ceased trading in June 2018. In October 2018, the business premises which were owned by the company were sold, with a gain of £150k. Would I be right in thinking that Entrepreneurs relief does not apply to the gain made by the company, but only to the distribution of capital on winding up. The company will be wound up in 2019. My client will not be setting up a new business.
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The company will pay CT on the gain, companies don't pay CGT so can't possibly benefit from entrepreneurs relief.
On winding up there will be a charge to CGT if a liquidator is used, whether ER is available, I wouldn't want to guess.
If a liquidator isn't used, you're looking at income tax, not CGT, so couldn't possibly benefit from ER.
Hi Adam
Correct me if I'm wrong but a liquidation would be treated as a disposal for ER. This would also apply to an informal winding up under ESC16 as per HMRC's CGT Manual at CG64115.
My question wasn't so much about whether the winding up of the company qualified for ER, it was more a query as to whether the disposal of the property was somehow a linked event given that it took place after the cessation of the trade and would therefore be covered by the relief.
There is now a £25k limit, if you read down to the bottom of CG64115, and ER treatment is by no means assured unless a liquidator is used (see s.1030A CTA 2010 & CTM36220)
I have presumed that the reserves are greater than £25k based on the company making a £150k gain.
If the reserves are greater than £25k you'll need a liquidator to wind the company up to obtain the CGT treatment.
A forum member runs MVL online (not myself) who I am sure can help.
Once the Company is washed through an Members Voluntary Liquidation via an Insolvency Practitioner, the Shareholders can claim entrepreneurs relief on the distributions they receive (assuming they fit the criteria for entrepreneurs relief).
This often results in a large saving as they only pay the 10% tax on the distribution instead of full tax. This saving will outweigh the Liquidators costs.