Q&As

Where a close company in members’ voluntary liquidation has made a loan to its sole shareholder and director, can you leave the funds with the individual without triggering a loan to participator tax charge under section 455 of the Corporation Tax Act 2010?

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Published on LexisPSL on 12/03/2018

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

  • Where a close company in members’ voluntary liquidation has made a loan to its sole shareholder and director, can you leave the funds with the individual without triggering a loan to participator tax charge under section 455 of the Corporation Tax Act 2010?

This Q&A assumes that the company and the director/shareholder are resident in the UK for tax purposes.

As explained in the Members' voluntary liquidation (MVL)—overview, the company can only enter MVL if it has made a declaration of solvency. The liquidator's role is to collect assets, pay any creditors outstanding and then pay the remaining sums to the shareholders before dissolving the company. As such, the company continues in existence and the liquidator deals with the company's property on its behalf, not on their own behalf. Once the liquidator is appointed, any distribution of the company’s assets, whether a cash dividend or a distribution in specie, would likely be treated as a distribution in respect of share capital on a winding up for tax purposes.

As set out in Practice Note: Tax consequences for close companies, if a close company makes a loan to a participator, th

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