CTM36850 - Particular topics: transactions in securities: liquidation

An ordinary liquidation (in which a company is wound up following the complete cessation of its business or the transfer of that business to a person unconnected with its original shareholders) is not within the scope of ICTA88/S703. However Section 703 can apply to counteract a tax advantage obtained in consequence of the combined effect of a transaction in securities and the liquidation of a company.

Example

A is the sole shareholder of trading company Company X that has £1m cash representing its undistributed profits. A subscribes for shares in new company Company Y. Company X transfers its trade and assets (but not the cash) to Company Y which continues to carry on the trade.

Company X is put into liquidation and the cash paid as a capital distribution to A.

ICTA88/S704D applies to the cash etc received by A in the liquidation (except to the extent that it represents the return of the amounts subscribed for the share capital in X). ICTA88/S704E may also apply to any subsequent repayments of the share capital in Y.

When considering applications for dissolution under the Companies Act to be treated as the equivalent of a distribution in a formal winding up under ESCC16 the instructions at CTM36220 are to be followed and cases within CTM36875 referred to AAG Clearance and Counteraction Team.