Despite established legislation, many people remain unaware of the tax intricacies around the striking-off, or liquidation, of a company.
An informal or voluntary strike-off (simple & cheap, therefore predictably limited)
Where the amounts distributable on the winding-up are £25,000 or less, then individual shareholders will pay capital gains tax (CGT) on them (a 10% tax rate with the benefit of Entrepreneurs Relief).
However, if the amounts distributable exceed £25,000, then the whole amount is subject to income tax, at individuals’ marginal dividend tax rates (currently up to 39.35%). No exceptions!
Members’ voluntary liquidation – MVL (more complicated & expensive in process, but an enhanced tax position)
Without limit, funds distributed on an MVL are (in principle) subject to CGT and not income tax.
Be warned though, there is a raft of related anti-avoidance tax legislation which has the effect of replacing the CGT with a dividend tax charge, where the cessation of a company is not matched by the cessation of business activity of the owner(s). Broadly, you can’t start, or become part of, a similar business within 2 years of liquidating the old one, or you risk triggering the income tax charge.
If the company has £25k or less in its coffers, then a voluntary strike-off is effective. Any more than that, it certainly isn’t, but care and advice are most definitely needed.
To hear more, feel free to get in touch with one of our tax team.
Our experienced and approachable team are on-hand to assist you, please get in touch below: