Until 6 April 2016, a distribution in the course of liquidation would generally be considered to be a capital distribution. In many cases Entrepreneurs Relief would be available to reduce the rate of Capital Gains Tax on the distribution to 10%.

HMRC are now targeting what they consider to be contrived liquidations where one of the main purposes of the liquidation is to avoid income tax and a similar trade or activity commences within two years of the distribution. In these circumstances the distribution will be treated as an income distribution and taxed at dividend rates up to a maximum of 38.1%.

If you wish to discuss the impact of these changes please contact us.