Transactions in securities and the Phoenix TAAR on a company sale or winding-up

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Transactions in securities and the Phoenix TAAR on a company sale or winding-up
  • When will the TiS provisions apply?
  • Exclusions
  • Clearances
  • Sale of a company
  • Liquidation of a company

The transactions in securities (TiS) legislation is anti-avoidance legislation aimed at situations where close company shareholders have engineered a disposal of shares to obtain a beneficial capital gains tax (CGT) rate, ie avoid income tax, on specified transactions.

The targeted anti-avoidance rule (TAAR) aims to combat cases of ‘phoenixism’ and applies to certain distributions made in the process of winding up companies on or after 6 April 2016. Prior to April 2016, such transactions were usually covered by the TiS regime. The TAAR was introduced to provide absolute certainty of treatment for such transactions and in practice when there is a company winding up the TAAR may be in point rather than the TiS.

This guidance note discusses some of the TiS and TAAR issues that may be encountered on a sale / winding-up of a business. It is not intended to be comprehensive analysis of all the relevant statutory provisions. For details of the relevant legislative definitions and other provisions, see the Transactions in securities and the Phoenix TAAR ― outline of regime guidance note.

When will the TiS provisions apply?

The TiS legislation targets schemes that aim to avoid tax by turning income profits (taxed at 45%) into capital gains (taxed at 20%, or 10% if business asset disposal relief (previously known as entrepreneurs’ relief) applies). Note there are also TiS rules for corporate tax purposes. These are to all intents and purposes redundant as companies are generally exempt from corporation tax on dividends and cannot, therefore, be said to be avoiding corporation tax on income if, instead, they receive capital sums. However, the corporate tax provisions have not been repealed in case some complex avoidance schemes would then become available to the corporate sector.

This simple transaction that the TiS legislation is intended to target can be well illustrated by considering the case of Cleary v IRC. In this case, the Cleary sisters sold the shares in one of their companies to another of their companies

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