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Finance Bill 2016 under consultation


8 January 2016: From 6 April 2016 the government are proposing new targeted anti-avoidance rules which set out the conditions where final distributions paid out by companies in liquidation to shareholders will no longer be taxable as a capital distribution in the hands of a taxpayer. The measure targets ‘phoenix companies’ where taxpayers look to distribute profits at capital gains tax rates as opposed to dividend tax rates – an area HMRC expect to see increased activity in with the rise of dividend tax rates. The legislation proposes to prevent a distribution being taxed as capital where:

  • an individual is a shareholder in a close company and receives a distribution in relation to a winding-up;
  • within a period of two years after the distribution, the individual is still involved in a similar trade or activity; and
  • the main or one of the main purposes of the winding up was to secure a tax advantage.

The Bill remains under consultation until 3 February 2016. The Bill, once it comes into effect, will not prevent those genuine companies who are ceasing to trade from taking advantage of entrepreneurs relief, but aims to stamp down on those that should be paying more than the 10% and treat the distribution as an income distribution rather than a capital distribution.

BRI’s team of experts are happy to discuss the impacts the new Finance Bill 2016 may have.