Changes to Tax Legislation Regarding Entrepreneurs' Relief

In yet another attempt by the Government to increase its revenues, the latest scheme being promoted is a change in tax rules concerning the availability of Entrepreneurs’ relief, which many tax experts believe will be effective from 6 April 2016.

The trend of tackling tax avoidance schemes seems to be a continuing theme with new rules being proposed that may affect distributions to individual shareholders in solvent liquidations – members’ voluntary liquidations. It is likely that a number of new and additional tests will need to be passed to qualify for Entrepreneurs’ relief.

We understand that, with effect from 6 April 2016, proposed new legislation to be included in the Draft Finance Bill 2016 may treat capital distributions from a company in member’s voluntary liquidation as income rather than capital if:

  • The circumstances surrounding the liquidation have the main purpose, or one of the main purposes, of obtaining a tax advantage
  • An individual who is a shareholder in a close company receives from that company a distribution in respect of shares held in a liquidation
  • Within a period of two years after that distribution, the shareholder is involved or connected to a trade or activity similar to that previously carried out by the liquidated company.

Clearly, if these changes are implemented, which most tax and accountancy experts expect, then the result of these changes is that shareholders may no longer, after 6 April 2016, be able to claim Entrepreneur’s relief on distributions made to them through a member’s voluntary liquidation. Nor would they be able to return to the same trade within a two year period without the risk of paying tax at a higher rate. This may well affect certain industries more than others, particularly the property development industry, where developers often ring fence individual properties by incorporating new companies for each property.

Not all companies will be affected by these proposed changes and the relevant professional advice should be sought before making any decisions that cannot be revoked. Should you believe that you may have any clients that would possibly be considering effecting a solvent liquidation process to take advantage of the current rules before the proposed new legislation becomes law, then we would be delighted to discuss this with you.

The majority of solvent liquidations that we effect for clients are fairly straightforward – the key to ensuring their success is effective tax planning, which is an area that we recommend should be completed by the company’s own auditors/accountants. The majority of our work is taken up with statutory compliance and distribution of funds.

Our fees are highly competitive and, for an average solvent liquidation, are usually around £2,000 plus VAT and disbursements.

At CFS, we have the experience and expertise required to wind down companies in a tax efficient manner.
If you believe that this forthcoming change in legislation could affect your clients, please get in touch with CFS today and we will happily speak with you or your clients confidentially about how we can help and the services that we provide.