However this exemption does not apply to capital gains arising in transactions with associated persons, except in limited circumstances where the associated person capital gain arises in the course of the liquidation of a close company (and the associated person is not a company).
TCGA92/S169S(2) makes it clear that a disposal of an interest in the shares in a company includes a disposal of an interest treated as made by virtue of TCGA92/S122.
This treats a capital distribution in respect of shares as a disposal (or part- disposal) of those shares, see CG57825 .
Further the situation was aggravated when the somewhat narrow definition of “related person” was replaced with the extensive definition of “associated person” meaning far more transactions were caught by the rules.
Finally, the over reach of the tax rules relating to capital gains has been recognised, with the “tainting” being removed from almost all transactions.
To place a company into a Members Voluntary Liquidation, the directors must follow a Summary Approval Procedure as set out in the 2014 Companies Act. The Declaration summarises the company’s assets and liabilities and the directors state that the company will be able to pay all of its debts in full within 12 months of the commencement of the Liquidation.
There may be serious consequences for the directors if they swear a Declaration which is inaccurate.
If all the relevant conditions for ESC/C16 to apply are satisfied, distributions made in circumstances described in CTM36205 will be treated as if they were capital distributions made in the course of a formal winding-up.
The company is treated as if it had begun a formal winding-up either on the date the company declared its intentions to seek or accept striking off and dissolution, or at an earlier date if the company had then ceased to carry on business and commenced to distribute its assets.
A Bill proposes a wide range of changes to the tainted capital gain rules.
Inland Revenue is to be commended for driving this change.
The original policy intent was to prevent companies creating artificial capital gains with related parties which could be distributed tax free without liquidating the company under the tax legislation as it stood prior to 1985 (instead of distributing revenue reserves).