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Entrepreneurs relief

Entrepreneurs relief- company ceased trading

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Client had a UK company(100%) in the UK, this was sold to a foreign company 15 years ago in exchage for shares in the holding company, share for share transfer. Last year the holding company sold the subsiadiary, 1 June 2018. On 15 June the holding company ceased trading. On 16 June a capital distribution was made to the shareholders. The holding company is being liquidated but this is done over 3 year because of the  the earn out payments and funds held ESCROW. Apparently, in the country where the holding company is based there is no requirment to appoint a liquidator, all they need to do is to sign a shareholders resolution which has been done. My question is, can we claim ER on the capital distribution? In my opinion, the distribution is capital and qualifies for ER. Any thoughts will be much appreciated.

Thank you

 

 

 

Replies (15)

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By Tax Dragon
13th Aug 2019 14:10

If the conditions are met (no way of knowing from your summary), then yes.
Else, no.

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Replying to Tax Dragon:
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By nic1995
13th Aug 2019 14:14

what conditions? client had the shares for over 2 years, he is a director, is this what you meant by conditions?

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By Tax Dragon
13th Aug 2019 14:29

There has to be a material disposal of business assets. This breaks down into conditions such as the ones you mention. So... yes, that is the sense in which I was using the word "conditions".

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By nic1995
13th Aug 2019 14:58

ok, yes the holding company sold the trading group so I guess this is material disposal.

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By Tax Dragon
13th Aug 2019 15:20

A disposal within paragraph (c) of subsection (2) is a material disposal if condition A, B, C or D is met.

Condition A is that, throughout the period of 2 years ending with the date of the disposal:

• the company is the individual's personal company and is either a trading company or the holding company of a trading group, and
• the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group.

Condition B is that the bulleted conditions in Condition A are met throughout the period of 2 years ending with the date on which the company:

• ceases to be a trading company without continuing to be or becoming a member of a trading group, or
• ceases to be a member of a trading group without continuing to be or becoming a trading company,

and that date is within the period of 3 years ending with the date of the disposal.

I'm not making this up. It's all in s169I TCGA 1992.

Personal company is defined. Ss169S and 169SA are essential reading.

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Replying to nic1995:
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By Matrix
13th Aug 2019 15:19

What percentage does your client hold in the holding company?

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By nic1995
13th Aug 2019 15:49

11%.

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By nic1995
13th Aug 2019 16:02

To tax Dragon, thank you.
I am aware of those conditions, what I was not sure is the fact that the holding company:
- made a capital distribution just a day after it ceased to trade ( the funds come from the sale of the trading subsidiaries)
- its taking 3 years to close the holding company due to the stage payments

-the only process of MVL will be the shareholder resolution without an official liquidator

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By Tax Dragon
13th Aug 2019 16:18

OK, so nothing to do with ER.

Your question is one I doubt I can help with. You need Justin to deign to answer. He somehow knows the information that isn't provided, as well as that which is.

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Psycho
By Wilson Philips
13th Aug 2019 16:31

You need to establish whether the overseas rules are more similar to a liquidation or to an informal striking off. It seems to me that a requirement only to sign a shareholders declaration is closer to the latter.

Section 1030A(6) of CTA 2010

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By nic1995
13th Aug 2019 17:31

So if similar to informal liquidation, then we also risk the distribution to be treated as dividend? The document showing the distribution payment does states that this payment is capital distribution according to the rules in that country, NZ.

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Replying to nic1995:
Psycho
By Wilson Philips
13th Aug 2019 17:57

What exactly is the process/provision by which the company is removed from the register in NZ? Is it similar to the UK Companies House provision?

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By nic1995
13th Aug 2019 18:53

From what I was told yes similar to uk

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Psycho
By Wilson Philips
13th Aug 2019 20:16

In which case there’s a real possibility that Entrepreneurs Relief is not in point.

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By nic1995
13th Aug 2019 21:13

Thank you, that was my worry

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