In recent years using a Member’s Voluntary Liquidation (MVL) has been a popular way of members of a company efficiently receiving dividends on a tax efficient basis.  However, forthcoming changes to the law mean that if you have been contemplating an MVL in relation to your business for purposes relating to restructuring, now is the time to act.

HMRC intend to reform the legislation in this area, with effect from 6 April 2016.  The implications of which are that dividends and other company distributions, as a result of solvent liquidations, will be treated as income, rather than capital where the following applies:

1. the individual is the shareholder in a close company (broadly speaking this means under the control of five or fewer shareholders);
2. within two years of the winding-up the individual carries on a similar trade or business to that of the liquidated company; and
3. a main purpose of the arrangement is to seek a tax advantage.

If you are contemplating an MVL we strongly advise that you take advice as to how these proposals may affect you and whether or not you would be advised to carry out the restructuring prior to 6 April 2016.

For further details please contact Caroline Cropley or your usual Druces contact.

This briefing was posted on 21 January 2016.