Liquidating distribution to shareholders

Under the new proposals, distributions will in some common circumstances be chargeable instead to Income Tax, at rates ranging up to 38.1%.The rules will apply to distributions made after 5th April 2016 (regardless of whether the liquidation commences before or after that date).Any individual receiving a distribution on a winding-up of a company.

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However, the corporate form usually provides owners with a greater degree of insulation from business liabilities than does the partnership form.A qualifying installment obligation is treated by a qualifying shareholder as newly issued on the date of the distribution.The issue price of the qualifying installment obligation on that date is equal to the sum of the adjusted issue price of the obligation on the date of the distribution (as determined under § 1.1275-1(b)) and the amount of any qualified stated interest (as defined in § 1.1273-1(c)) that has accrued prior to the distribution but that is not payable until after the distribution.The rules will apply if three conditions are all met. Within two years after the date of the distribution, the individual receiving the distribution (or someone connected with him or her) is involved in carrying on any trade or other activity previously carried on by the company (or any similar trade or activity); this could for example be as sole trader or via a partnership LLP or new company.It is reasonable in all the circumstances to assume that one of the main purposes of the liquidation (or arrangements of which the liquidation forms part) is the avoidance of Income Tax.

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