Informal winding up

The Corporation Tax Act 2010 allows a solvent company to be wound up without the use of a liquidator, and for its assets to pass to the shareholders as capital distributions rather than income distributions.

What is the benefit?

This treatment benefits the shareholders as the distribution received will be subject to capital gains tax rather than income tax.  Subject to the availability of entrepreneurs relief, in many cases this can secure a maximum tax rate of 10 percent rather than income tax of 25 percent or possibly higher.

This process also  avoids the need and sometimes substantial costs of undertaking a more formal liquidation.

Limits

A company may only apply the above treatment if total distributions made upon winding up do not exceed £25,000. Unfortunately if a company is to be dissolved and the distributions to shareholders will exceed £25,000 in total then a formal winding up will need to be carried out to secure the capital treatment. An informal winding up may still be carried out but the distributions received by shareholders will be subject to income tax.

If you are considering exiting your business, please contact a member of the taylorcocks team who will be able to advise on the most tax efficient strategy for you.

** As with any exit strategy, the right course of action will always depend on the unique circumstances of the company and people involved.  It is clear that professional advice should always be sought in advance of deciding on the most tax efficient and practical means to exit.