Proposed changes re capital payments on liquidation of company

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From 6 April 2016 it is being proposed that a shareholder will not be able to engage in a similar trade or activity for two years after receipt of a capital distribution.

The new legislation will consider any capital distributions, following the winding up of a company as income as opposed to capital, if, within a period of two years after the distribution, the shareholder engages in a similar trade or activity.

The introduction of this rule, together with the general tightening of dividend rules set to be implemented after 6 April 2016, will significantly change the landscape for company directors and shareholders.

If you are in this position, it would seem that there is a clear incentive to commence liquidation proceedings as soon as possible, with any capital payments being made before 6 April next year. Also, any capital reductions that are in progress ought to be concluded sooner rather than later. Similarly, any entrepreneurs’ advice predicated on rolling up money in a company and liquidating may need revisiting.

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