Tim Palmer explains how the capital gains tax targeted anti-avoidance rule could hit owners of a company with an unexpected extra tax bill after they liquidate it.
When the owner of a company liquidates it, extracts capital distributions and then starts the same trade up again within two years, the capital gains tax (CGT) targeted anti-avoidance rule (TAAR) could bite.
For this anti-avoidance legislation to apply, HMRC has to prove that the taxpayer liquidated their company in order to avoid or reduce a charge to income tax.
If the TAAR applies, the individual, who has been liable to CGT at either 10% (thanks to business asset disposal relief) or 20% otherwise, will be liable to income tax on the distributions at higher tax rates of up to 39.35%, instead.
Accordingly, if HMRC succeeds with applying the TAAR, they will go back to the capital distributions in the liquidation and re-tax them at the
