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Tax treatment

Closure of Limited Company

I was hoping someone could clarify my understanding of the tax treatment of the sale of shares is correct or point out where I am going wrong:

Individual purchased shares in company A for £20k (60% of issued share capital)  seven years ago, he also purchased shares in Company B for £10k (10% of issued share capital) at the same time. He was a Director of these trading companies from this date onwards.

2 years later he decided to set up a holding company and by way of a share for share exchange he transferred ownership of the above two companies so they were owned by his Hold Co say Company C. He owned 100% of company C, which did not own any other companies.

A further two years down the line, the shares held in Company B were sold by Company C for £20k resulting in a gain of £10k. Three months prior to this Company A had ceased to trade and had a share capital reduction, Company C therefore received its investment (in Company A) back of £20k back in full with no further monies received relating to Company A (The share capital went from circa 33,000 £1 shares to 100 £1 shares). The gain on the sale of the shares in Company B was subject to corp tax (SSE not available) and tax was paid at 20% of £10k.

Up until the above happened Company C had received some small dividend income and as a result of the above proceeds now has an overdrawn DLA of circa £18k following the payment of all liabilities. Basically the Director has emptied the bank account. 

As this amount is less than <£25k can he apply to strike off the comapny and have the DLA distributed to him as a capital payment? If so, I assume I am required to send a tax clearance beforehand? In terms of his base cost for the shares in hold co (Company C) is this still the total of the purchase price of Company A & B when he purchased them as an individual so £30k in total, meaning no gain on the distribution of the DLA? 

To further complicate things, he is now a sole trader carrying on the same trade as the above companies but from different locations so I hope this isnt an issue.

I hope that I have explained this well enough and provided the necessary facts!

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13th Jul 2018 11:01

My gut instinct makes me feel that there are other issues which may need to be addressed but cannot be sure without more information. What was the nature of the trade of Company A? What assets did it have on cessation? Goodwill? How did your client 'acquire' those assets to carry on the same trade?

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