New Rules on Winding up a Company
Discussion
HMRC are proposing changing the rules on how directors/shareholders pay tax on money withdrawn from companies that are being wound up.
Effectively, they want to stop individuals treating this income as a capital distribution subject to Capital Gains Tax and want to tax the income under the new dividend tax rules.
Unfortunately, the "consultation period" allowed by HMRC was extremely short (9 December -3 February) and the rule change would come into effect on 6 April 2016.
It's all here for anybody who feels this might affect them.
https://www.gov.uk/government/uploads/system/uploa...
Effectively, they want to stop individuals treating this income as a capital distribution subject to Capital Gains Tax and want to tax the income under the new dividend tax rules.
Unfortunately, the "consultation period" allowed by HMRC was extremely short (9 December -3 February) and the rule change would come into effect on 6 April 2016.
It's all here for anybody who feels this might affect them.
https://www.gov.uk/government/uploads/system/uploa...
I've started the ball rolling with three MVLs since this came out, the liquidator I use said he had 80+ to deal with before the new tax year...not bad at around £4k a pop!
Significant changes and it's a huge blow to those hoping to build up funds and utilise their entrepreneurs' allowance at a later date.
Goalposts moved again.
Significant changes and it's a huge blow to those hoping to build up funds and utilise their entrepreneurs' allowance at a later date.
Goalposts moved again.
dirty boy said:
I've started the ball rolling with three MVLs since this came out, the liquidator I use said he had 80+ to deal with before the new tax year...not bad at around £4k a pop!
Significant changes and it's a huge blow to those hoping to build up funds and utilise their entrepreneurs' allowance at a later date.
Goalposts moved again.
If you're really paying £4k a pop send me a DM. We are getting 6 done in our office and they are £2k for under 250k, £2.5k for 250-1m and £3k for £1m+Significant changes and it's a huge blow to those hoping to build up funds and utilise their entrepreneurs' allowance at a later date.
Goalposts moved again.
£4k sounds high.
I haven't heard of this one so will be asking my accountant tomorrow what he thinks but in the meantime I wonder whether any one can indicate whether this new rule may apply to us.
My nephew, my wife and I started a company in 2014 for the specific purpose of developing our redundant industrial site. We transferred our land into the new company and have paid the CGT on that transaction, early last year we borrowed a large amount of money from the bank to pay a contractor to build houses for us.
These houses are nearing completion and our agents have started taking reservations. The first occupation will be at the end of March and at the current rate of sales we anticipate we will have paid the bank back by around the end of June and assuming we have sold them all by the autumn will be in a position to wind up the company and distribute the profits.
My nephew, my wife and I started a company in 2014 for the specific purpose of developing our redundant industrial site. We transferred our land into the new company and have paid the CGT on that transaction, early last year we borrowed a large amount of money from the bank to pay a contractor to build houses for us.
These houses are nearing completion and our agents have started taking reservations. The first occupation will be at the end of March and at the current rate of sales we anticipate we will have paid the bank back by around the end of June and assuming we have sold them all by the autumn will be in a position to wind up the company and distribute the profits.
It all depends.
You could liquidate the company after selling the properties - this would still give capital gains treatment PROVIDED you are not involved in a similar trade or activity within the following two years.
If you are -eg you have another company or business doing property development - then the liquidation would be an income distribution so no capital gains treatment and no ER.
It is also worth bearing in mind that the legislation is only draft - it could change to become even more restrictive.
It is definitely worth getting professional advice - there are things you can do to lock in the ER now but they are dependent on your particular circumstances and you are rapidly running out of time. Where a liquidation is viable, we are encouraging our clients to get it done before the Budget next month in case there are any more nasty surprises!
You could liquidate the company after selling the properties - this would still give capital gains treatment PROVIDED you are not involved in a similar trade or activity within the following two years.
If you are -eg you have another company or business doing property development - then the liquidation would be an income distribution so no capital gains treatment and no ER.
It is also worth bearing in mind that the legislation is only draft - it could change to become even more restrictive.
It is definitely worth getting professional advice - there are things you can do to lock in the ER now but they are dependent on your particular circumstances and you are rapidly running out of time. Where a liquidation is viable, we are encouraging our clients to get it done before the Budget next month in case there are any more nasty surprises!
TNJ said:
It all depends.
You could liquidate the company after selling the properties - this would still give capital gains treatment PROVIDED you are not involved in a similar trade or activity within the following two years.
If you are -eg you have another company or business doing property development - then the liquidation would be an income distribution so no capital gains treatment and no ER.
It is also worth bearing in mind that the legislation is only draft - it could change to become even more restrictive.
It is definitely worth getting professional advice - there are things you can do to lock in the ER now but they are dependent on your particular circumstances and you are rapidly running out of time. Where a liquidation is viable, we are encouraging our clients to get it done before the Budget next month in case there are any more nasty surprises!
Thanks very much for the advice so far gentlemen, I'm waiting to hear from my accountant but in the meantime here's a little more information and another question.You could liquidate the company after selling the properties - this would still give capital gains treatment PROVIDED you are not involved in a similar trade or activity within the following two years.
If you are -eg you have another company or business doing property development - then the liquidation would be an income distribution so no capital gains treatment and no ER.
It is also worth bearing in mind that the legislation is only draft - it could change to become even more restrictive.
It is definitely worth getting professional advice - there are things you can do to lock in the ER now but they are dependent on your particular circumstances and you are rapidly running out of time. Where a liquidation is viable, we are encouraging our clients to get it done before the Budget next month in case there are any more nasty surprises!
This development is a one off to fund our retirement so in theory we will not be doing any more within the next two years.
We do however have other business's that will continue to trade, one owning and renting out commercial and residential property and another in construction contracting, (now very small scale but we will be building a penthouse for ourselves through this as our final job).
Unfortunately I don't see any possibility of an early liquidation but the money from the development company liquidation will be distributed to us personally so I'm hoping that may be okay provided we comply with the two year rule that you mention.
Any thoughts on how this sounds would be much appreciated.
It may be ok - it all depends on what HMRC class as being a "similar trade or activity". If they interpret this very widely, they could consider that your property investment and construction activities are "similar" to your property development business - in which case, you would not get capital gains treatment when liquidating the property development company.
Alternatively, you could argue that property development is entirely different to investment or construction -it may all be related to property but the actual activities are clearly different.
Who knows??? This is the problem at the moment - everything is incredibly unclear and it is likely to be months if not years before we have any real idea as to how this will all be interpreted.
Alternatively, you could argue that property development is entirely different to investment or construction -it may all be related to property but the actual activities are clearly different.
Who knows??? This is the problem at the moment - everything is incredibly unclear and it is likely to be months if not years before we have any real idea as to how this will all be interpreted.
I have 2 clients with ongoing MVL's which were started prior to Xmas once the effects had been publicised.
They may not be running similar businesses again in any case, but the sheer potential extra tax made it a no-brainer to proceed.
I understand that any MVL's started now may not get completed in time to beat the April 5th deadline - good luck to those that now try!!
David
They may not be running similar businesses again in any case, but the sheer potential extra tax made it a no-brainer to proceed.
I understand that any MVL's started now may not get completed in time to beat the April 5th deadline - good luck to those that now try!!
David
Eric Mc said:
Liquidations usually take a lot longer than a couple of weeks. Perhaps they are fast tracking them at the moment in an effort to beat the deadline.
An MVL can be done in a day with indemnities to the liquidator. Edited to say, a day for these purposes ie, a capital distribution before 6 April.
Edited by Alpinestars on Tuesday 23 February 20:26
Alpinestars said:
An MVL can be done in a day with indemnities to the liquidator.
Edited to say, a day for these purposes ie, a capital distribution before 6 April.
How often are they done in a day?Edited to say, a day for these purposes ie, a capital distribution before 6 April.
Edited by Alpinestars on Tuesday 23 February 20:26
What type of fees would a "day liquidation" fetch?
will this affect all winding-up's, or just those which are obviously out to convert income to capital gains, ie property spv's, or cash held in the bank?
my end-plan has always been to wind-up my business when ready, and extract the balance sheet value under ER rules.
In my case, the reserves built up are actively employed in trading activities (and have been constantly for several years), and will continue to be until a decision is made to wind up the company.
Assuming I don't continue to engage in similar trades for the following two years, would this still be treated as a capital distribution eligible for ER?
my end-plan has always been to wind-up my business when ready, and extract the balance sheet value under ER rules.
In my case, the reserves built up are actively employed in trading activities (and have been constantly for several years), and will continue to be until a decision is made to wind up the company.
Assuming I don't continue to engage in similar trades for the following two years, would this still be treated as a capital distribution eligible for ER?
isleofthorns said:
will this affect all winding-up's, or just those which are obviously out to convert income to capital gains, ie property spv's, or cash held in the bank?
my end-plan has always been to wind-up my business when ready, and extract the balance sheet value under ER rules.
In my case, the reserves built up are actively employed in trading activities (and have been constantly for several years), and will continue to be until a decision is made to wind up the company.
Assuming I don't continue to engage in similar trades for the following two years, would this still be treated as a capital distribution eligible for ER?
Yes as things stand. my end-plan has always been to wind-up my business when ready, and extract the balance sheet value under ER rules.
In my case, the reserves built up are actively employed in trading activities (and have been constantly for several years), and will continue to be until a decision is made to wind up the company.
Assuming I don't continue to engage in similar trades for the following two years, would this still be treated as a capital distribution eligible for ER?
We will know more following the Budget.
Alpinestars said:
isleofthorns said:
will this affect all winding-up's, or just those which are obviously out to convert income to capital gains, ie property spv's, or cash held in the bank?
my end-plan has always been to wind-up my business when ready, and extract the balance sheet value under ER rules.
In my case, the reserves built up are actively employed in trading activities (and have been constantly for several years), and will continue to be until a decision is made to wind up the company.
Assuming I don't continue to engage in similar trades for the following two years, would this still be treated as a capital distribution eligible for ER?
Yes as things stand. my end-plan has always been to wind-up my business when ready, and extract the balance sheet value under ER rules.
In my case, the reserves built up are actively employed in trading activities (and have been constantly for several years), and will continue to be until a decision is made to wind up the company.
Assuming I don't continue to engage in similar trades for the following two years, would this still be treated as a capital distribution eligible for ER?
We will know more following the Budget.
thanks
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