Members Voluntary Liquidation (MVL) can still be tax efficient despite new Anti-Avoidance rules
A new Targeted Anti-Avoidance Rule prevents the treatment of a distribution as capital in certain circumstances. Notwithstanding this Members Voluntary Liquidations (“MVLs”) are still a useful tool for tax efficient distributions, de-mergers and even winding up charitable and not for profit companies.
From 6 April 2016 the new Targeted Anti-Avoidance Rule will apply and will treat a distribution from a winding up as income if:
- an individual is a shareholder in a close company and receives a distribution in respect of shares in a winding up
- within 2 years of the winding-up the person carries on a similar trade and activity
- the arrangements have a main purpose, or one of the main purposes is to obtain a tax advantage.
The Rule is aimed at those who use Company structures to build reserves and use the MVL route to efficiently extract funds which would ordinarily be taxed as income. Notwithstanding this an MVL is still a cost effective and valuable tool for efficiently extracting funds particularly for retirement or succession planning or when a person will carry on different trade and activity in the following 2 years.
A specific exemption has been made to prevent liquidation demergers of close company groups falling within the rules. A close company is broadly a company under control of five or less participators or that has participators who are also Directors. This exemption allows groups to be streamlined using non-statutory demerger techniques without falling foul of these rules. Complex group structures can be a barrier to finance and become a burden therefore it is important that tax-neutral de-mergers are still achievable.
Given the infancy of the new rules it may be prudent to seek clearance from HMRC in respect of any non-statutory demerger. Our experienced Tax and Restructuring team will carry out a detailed review of the practical, commercial, legal and accounting implications of any proposed restructuring.
If you or your client wants to restructure or streamline a group structure please do not hesitate to contact our team on 028 8775 2990.
Whilst every effort has been made by CavanaghKelly to ensure the accuracy of the information here, it cannot be guaranteed and neither CavanaghKelly nor any related entity shall have liability to any person who relies on the information herein. Information given here is for guidance only. Detailed professional advice should be taken before acting on any information contained herein. If having read the guidance here, you would like to discuss further; a member of our team would be pleased to help you.