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Mountains out of molehills, sledgehammers and walnuts
The logic displayed by HMRC in the condoc is, at best, seriously flawed. In one example, they suggest that it is unfair that a shareholder is able to secure CGT treatment on an MVL where another shareholder would be have to pay income tax on a dividend of the same amount extracted from an ongoing trading company. Perhaps if HMRC were intelligent enough to compare like with like I might have some sympathy for their stance. Did it not occur to them that shareholder 2 would be entitled to the same CGT treatment once their company had also reached the end of its life?
Courts have established over a number of years that there is nothing inherently unfair or abusive in a taxpayer choosing the more tax-efficient of a number of options (so long as it is not contrived or artificial). I find nothing artificial or contrived about passively leaving cash in he company. Just because a distribution might have been taxed as income had the taxpayer taken steps to ensure that was the case, in my mind doing nothing is not an active step of turning capital into income, and I find HMRC's suggestion that this is somehow unfair to be quite absurd. My wife puts £30k into premium bonds and I pay £30k into my pension. Is it unfair that she doesn't get tax relief on her investment, whereas I do?
The other examples (phoenixism, creation of capital via holding companies etc) I have less an issue with.
Discriminatory
For what it’s worth, my view is that this measure unfairly prejudices genuine businesses and undermines the purpose of Entrepreneurs relief.
This is an ill thought out measure which appears to be being rushed through without proper time to consult and amend it.
Let's take a genuine entrepreneur who builds up a close company in the cleaning industry, employing 5 people. For tax reasons, draws a minimal salary and dividends are modest. Builds up £100k of reserves over time.
Sells the trade to a third party for £10k with a non-compete clause for 6 months or perhaps takes a year out.
After that starts a new company and goes back into the industry they know best.
Your measure will prevent him from benefitting from ER.
This measure is therefore, in my opinion, discriminatory, grossly unfair and disproportionate and potentially illegal. Who will qualify if you exclude companies because they are "close" or because HMRC think it was done for tax purposes?
If the purpose of this measure is to prevent phoenixing (which is fine), then a timescale of no trading within six months would achieve the same purpose but not prejudice genuine business cases where someone ceases to trade and distributes assets on winding up.