The GAAR advisory panel has released an opinion into a share scheme designed to extract capital from a company in a tax free form.
“Perhaps not surprisingly HMRC did not like the plan. The structuring involved issuing shares with special rights which gained value once a hurdle had been met. Interestingly the advisors sought a valuation from HMRC under the employee shareholder rules (since repealed) and then went on to issue the shares and promptly buy them back. This GAAR panel announcement goes to show the continued attack by HMRC on attempting to extract income in a capital form.
We are regularly asked if two commonly owned companies can be brought into a group in a way which allows for the extraction of capital. The simple answer to that is no they can’t. There is clear caselaw in HMRC’s favour and Transactions in Securities legislation to convert capital gains into income distributions. If it sounds too good to be true it probably is.”
If you are considering extracting capital from your company, please do get in touch.
As always, you are reminded that this article is generic in nature and you should take no action based upon it without consulting your professional advisor.