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06-Aug-2015 01:32

331 when they receive the liquidation proceeds in exchange for their stock.

If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.

331 for the difference between the FMV and the shareholder’s basis in the stock).

As a result, the tax consequences of a subsequent sale of the assets by the shareholder should be minimal. The corporation is treated as selling the distributed assets for FMV to its shareholders, with the resulting corporate-level tax consequences.

A further condition is that the individual (or connected person) continues to carry on the same or a similar trade or activity to that carried on by the wound-up company within the two years following the distribution.

It must also be reasonable to assume having regard to all of the circumstances, that the arrangements appear to have a tax advantage as one of the main purposes.

Their standard reply states that it is not their general practice to offer tax clearance on recently introduced legislation.

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Consequently, new stricter rules now apply to transactions dated on or after 6 April 2016. For the new anti-avoidance rules to apply the company being wound up must firstly be a close company and the individual must have held at least a 5% interest in the company (ordinary share capital and voting rights).One of the anti-avoidance measures introduced by the latest Finance Act changes the way that certain payments to shareholders will be taxed.This may result in payments following some company liquidations being taxed as dividends instead of capital gains.Shareholders that do not have a strong preference on whether distributions in 2012 are taxed as dividends or capital gain/loss may prefer sale or exchange (capital) treatment in 2012 if they: Shareholders that assume corporate liabilities or receive property subject to corporate liabilities take the liabilities into account in computing their gain or loss.

They do not increase their basis in the property received on liquidation because doing so would give them a double tax benefit.

Then, the shareholders are treated as exchanging their stock for the FMV of the assets distributed in complete liquidation, with the resulting gains or losses at the shareholder level.