Q&As

Is a shareholder prevented from future involvement in a trade where entrepreneurs’ relief has been claimed on a distribution of assets as a part of a members' voluntary liquidation?

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Published on LexisPSL on 11/01/2018

The following Tax Q&A provides comprehensive and up to date legal information covering:

  • Is a shareholder prevented from future involvement in a trade where entrepreneurs’ relief has been claimed on a distribution of assets as a part of a members' voluntary liquidation?

A targeted anti-avoidance rule (TAAR) was introduced in the Finance Act 2016 (FA 2016) which may impact on a shareholder’s ability to be involved in a trade following a distribution of assets on a member’s voluntary liquidation. The TAAR potentially impacts liquidations of close companies on or after 6 April 2016 where an individual shareholder receives a distribution from a liquidator and the distribution is not just a partial or full repayment of original share capital. Where it applies, the TAAR taxes distributions made to individuals as income which means that the recipient will not be able to benefit from entrepreneurs' relief, which is a capital gains tax (CGT) relief.

The TAAR applies to tax as income a distribution made on or after 6 April 2016 to an individual by a UK tax resident company in a winding up if Conditions A–D (outlined below) are met and the distribution is not excluded. The Conditions A–D are:

  1. the individual receiving the distribution (the recipient) must have held at l

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