HMRC has published guidance on its views on the recent changes to the tax rules in relation to company windings up.
The Finance Act 2016 introduced a new Targeted Anti-Avoidance Rule (TAAR) to prevent “phoenixism” – broadly where solvent companies are liquidated so that shareholders dispose of their shares to realise a Capital Gains Tax charge rather than paying income tax on the profits that would otherwise be distributed.
The new rules will broadly apply where:
- individuals hold 5% in the company immediately before winding up;
- the company was a close company at any point in the two years ending with the winding up;
- the individual received the distribution and continues to carry on the same trade (whether directly or through a partnership, or a company in which they hold at least 5% of the shares) within two years of the distribution; and
- avoidance of income tax is the main purpose, or one of the main purposes, of the winding up.
The new rules also apply to distributions from a non-resident company that is wound up.
The new guidance can be found here.