An update on proposed changes to the treatment of distributions in a liquidation

1 April 2016

Further to my previous blog ‘Proposed changes to the treatment of distributions in a liquidation’,  the consultation has now closed. The Government will continue with plans to amend the Transactions in Securities rules and will introduce the new Targeted Anti-Avoidance Rule (TAAR), but, to reflect some of the issues raised during the consultation period, they will amend the proposed draft legislation.

These amendments will be made to the legislation so that:

  • it will not apply to minority shareholders;
  • ‘arrangements’ is clearly defined;
  • distributions will not be treated as income to the extent that they represent the Capital Gains ‘base cost’; and
  • the exemption for distributions of irredeemable shares will be widened to ensure that the TAAR does not apply to standard ‘liquidation demergers’.

Hopefully these proposed amendments will provide additional clarity.

It is more than likely that the proposed legislation, as amended, will be implemented and, as such, will form part of the Finance Bill 2016 which remains due to come into effect from 6 April 2016.

The majority of the respondents to the consultation requested for a clearance procedure for the TAAR, but the Government took the view that it does not deem this to be appropriate in these circumstances because clearance procedures are not generally provided for by this type of anti-avoidance rule. However, HMRC will provide guidance to demonstrate how this rule will be applied in practice.

There is no current consensus in favour of a more wide-ranging review of the distributions legislation, and the Government have no current plans for such a review.

I explained in the previous blog what the impact of these changes would be. I would advise again that a review of all liquidation or return of capital demerger transactions in progress, or being contemplated, be undertaken to establish whether they may potentially be within the scope of the draft legislation.

If you would like to discuss any of the changes discussed in this blog, please contact your usual UHY adviser at your nearest location or complete our online contact form.