New rules introduced earlier this month have changed the way in which company distributions are taxed – and the new rules have particular implications on the winding-up of businesses.
The Government fear that too many individuals are liquidating companies to capitalise on Entrepreneurs Relief that enables the extraction of profits as capital and results in tax at 10% as opposed to dividend income which can suffer tax up to 38.1%.
As of 6 April 2016, the rate of Capital Gains Tax (CGT) has been reduced from 28% to 20% for higher rate tax payers on the disposal of all but residential property. This can be further brought down to 10% with Entrepreneur’s Relief (ER).
However, the additional rate of tax on dividend income is 38.1% and it looks likely that any distributions on the wind-up of a company will be taxed at this rate.
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