{"id":2730,"date":"2017-03-15T16:38:43","date_gmt":"2017-03-15T16:38:43","guid":{"rendered":"https:\/\/smh.group\/?p=2730"},"modified":"2023-02-15T13:53:12","modified_gmt":"2023-02-15T13:53:12","slug":"property-developers-extracting-profits-capital","status":"publish","type":"post","link":"https:\/\/devstagesite.co.uk\/smhgroup\/property-developers-extracting-profits-capital\/","title":{"rendered":"Property developers &#8211; Extracting profits as capital"},"content":{"rendered":"<p><strong>A fairly common practice is to set up a new company for each development and then liquidate the company when the property is sold, in the hope that the distribution is eligible for Entrepreneur\u2019s Relief and thereby benefits from a 10% tax rate, saving as much as 28.1% when compared to the rate payable on an income dividend distribution.<\/strong><\/p>\n<p>However, beware recent anti- avoidance legislation if you subsequently start up a \u2018phoenix company\u2019.<\/p>\n<p>New legislation, effective from April 2016, means\u00a0that a distribution in a winding up is treated as an income distribution if all the following conditions are met:<\/p>\n<p>a) immediately before the winding-up the individual held an interest of more than 5% in the company, and<\/p>\n<p>b) at the time of the winding-up, or at any time in the preceding 2 years, the company was a close company, and<\/p>\n<p>c) at any time in the 2 years after the winding-up the individual (or a person \u2018connected\u2019 with the individual) carries on the same or similar trade that was carried on by the company (or an effective 51 per cent subsidiary company) either by himself, in partnership, or as a participator in a company which carries on such a trade.<\/p>\n<p>d) the purpose, or one of the main purposes, of the winding-up is the avoidance of income tax.<\/p>\n<p>An outright sale of the shares to 3<sup>rd<\/sup> party, or a distribution on liquidation where the director\/shareholder retires, are not normally caught by the new rules. In many other cases it will be more difficult to successfully argue that one of points a-d is not in point. Questions such as \u2018when is a trade <em>similar<\/em>? , or \u2018when is tax avoidance one of the <em>main<\/em> purposes\u2019 may have to be answered.<\/p>\n<p>If HMRC are successful in invoking this legislation you will pay tax at Income Tax rates <strong>and<\/strong> a penalty charge if you haven\u2019t disclosed all relevant circumstances on your tax return. So don\u2019t gamble, seek advice before you make detailed plans!<\/p>\n<p>Sutton McGrath Hartley are experts in all aspects of property taxation, so if you are a property investor or property developer why not give\u00a0<strong>David Sutton<\/strong>\u00a0or\u00a0<strong>James Hartley<\/strong>\u00a0a call on\u00a0<strong>0114 266 4432<\/strong>\u00a0to arrange a free no obligation consultation? Alternatively, please email\u00a0<strong><u><a href=\"mailto:dsutton@smh.group\">dsutton@smh.group<\/a><\/u><\/strong>\u00a0or\u00a0<strong><u><a href=\"mailto:jhartley@smh.group\">jhartley@smh.group<\/a>. <\/u><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A fairly common practice is to set up a new company for each development and then liquidate the company when the property is sold, in the hope that the distribution is eligible for Entrepreneur\u2019s Relief and thereby benefits from a 10% tax rate, saving as much as 28.1% when compared to the rate payable on an income dividend distribution. However, beware recent anti- avoidance legislation if you subsequently start up a \u2018phoenix company\u2019. New legislation, effective from April 2016, means\u00a0that a distribution in a winding up is treated as an income distribution if all the following conditions are met: a) immediately before the winding-up the individual held an interest of more than 5% in the company, and b) at the time of the winding-up, or at any time in the preceding 2 years, the company was a close company, and c) at any time in the 2 years after the winding-up the individual (or a person \u2018connected\u2019 with the individual) carries on the same or similar trade that was carried on by the company (or an effective 51 per cent subsidiary company) either by himself, in partnership, or as a participator in a company which carries on such a trade. [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[3,4],"tags":[86,11,21,87,84,85],"class_list":["post-2730","post","type-post","status-publish","format-standard","hentry","category-smh-accounting-business-advisory","category-chartered-tax-advisers","tag-entrepreneurs-relief","tag-hmrc","tag-income-tax","tag-property-developers","tag-shareholders","tag-tax-advice"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Property Developers - Extracting Profits as Capital | SMH<\/title>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Property Developers - Extracting Profits as Capital | SMH\" \/>\n<meta property=\"og:description\" content=\"A fairly common practice is to set up a new company for each development and then liquidate the company when the property is sold, in the hope that the distribution is eligible for Entrepreneur\u2019s Relief and thereby benefits from a 10% tax rate, saving as much as 28.1% when compared to the rate payable on an income dividend distribution. However, beware recent anti- avoidance legislation if you subsequently start up a \u2018phoenix company\u2019. New legislation, effective from April 2016, means\u00a0that a distribution in a winding up is treated as an income distribution if all the following conditions are met: a) immediately before the winding-up the individual held an interest of more than 5% in the company, and b) at the time of the winding-up, or at any time in the preceding 2 years, the company was a close company, and c) at any time in the 2 years after the winding-up the individual (or a person \u2018connected\u2019 with the individual) carries on the same or similar trade that was carried on by the company (or an effective 51 per cent subsidiary company) either by himself, in partnership, or as a participator in a company which carries on such a trade. 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