Transactions in securities and MVLs

The transactions in securities (TiS) rules are a set of long-standing anti-avoidance provisions, aimed at people who use company transactions to receive money as capital (taxed at the lower Capital Gains Tax rates) when, in the normal course of things, it would have been treated as income (dividends, taxed higher).

Because an MVL turns a company’s retained profits into a capital distribution, you may be wondering whether these rules could come into play for you. For the vast majority of people closing a solvent company via an MVL, the answer is no, but it’s worth understanding where the line sits.

If the TiS rules apply to a transaction, HMRC can issue a counteraction notice which recharacterises the capital distribution as income and levies tax on it accordingly. In an MVL, that would mean losing the capital treatment, as well as any Business Asset Disposal Relief, and being taxed on your distribution as though it were a dividend.

The rules can only apply where it can be shown that a main purpose, or one of the main purposes, of the transaction was to obtain an income tax advantage.

When we are looking at a genuine, ordinary MVL, where a company is closed because its trade has genuinely come to an end, then this is outside the scope of these rules.

Where these anti-avoidance tax rules can be triggered is in arrangements that use the MVL to convert income into capital while the underlying business carries on uninterrupted or resumes soon after.

The classic example is placing a company into an MVL, taking the reserves out as capital to benefit from the favourable tax treatment, and then continuing on the same trade through a new company, or by transferring the business to another company you’re connected to. In that situation a main motivation of the MVL can look very much like obtaining an income tax advantage, and the rules can therefore be brought into play.

When it comes to determining whether you may fall foul of the transactions in securities rule, you need to ask yourself whether you are genuinely closing the business, or simply carrying it on in a new entity?

The transactions in securities rules are closely related to the better known Targeted Anti-Avoidance Rule (TAAR). TAAR is a more recent (2016) rule that is aimed specifically at instances of “phoenixing,” where a company is liquidated and the same business promptly resumes via a new limited company.

The TiS rules are the older, broader provisions; the TAAR was introduced to target the same behaviour more directly. Both can be in play where someone places a company into an MVL and carries on a similar trade, so they’re worth considering together.

Where there’s any genuine doubt as to whether you could be impacted by these rules, there’s a statutory clearance procedure and your accountant can apply to HMRC in advance for confirmation that the TiS rules won’t apply to your MVL. For anyone whose situation isn’t completely clear-cut, it’s the sensible way to remove any uncertainty before going ahead.

For most of the people we help, such as contractors and company owners closing a solvent company they simply no longer need or want, the TiS rules simply aren’t a concern.

However, if there’s a possibility of any continuation of the trade on the cards, it’s very much a conversation to have with your accountant first.

If your company’s straightforward and an MVL looks like the right route, you can get a fixed-fee quote in a couple of minutes.