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The future of transactions

The government is concerned that the attractiveness of the lower rates of Capital Gains Tax of 28%,18% and 10% if Entrepreneurs’ Relief applies (compared to the new normal dividend tax rates) may encourage individuals to structure their affairs mainly to benefit from lower tax rates.  The worry is that this is distorting normal commercial decision making and putting those who do not structure their affairs around the tax system at a competitive disadvantage.  As a result they are currently consulting on proposals to put in place targeted anti avoidance legislation.  Situations where a capital sum is received that are under scrutiny are distributions on a winding up (“phoenixism”), company share buy backs, repayments of share capital and even third party sales.

The new rules will of course be targeted at situations where there is avoidance in play but let’s hope they are drafted in such a way as not to catch genuine transactions in these areas that just have a slight nuance about them.  There are also some suggested wider reaching provisions that echo back to 30 years ago when retained profits that had no earmarked trade purpose were taxed as notional distributions.  That approach would be most unwelcome.  It is probably good advice to push through any transactions currently in progress or in serious contemplation before any changes bite, taking in to account we have a Budget scheduled for 16 March 2016 and legislative changes from this consultation are planned to take effect from 6 April 2016.



Date: 11th January, 2016
Author: Cathy Corns


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