The default position was, and still is:
Everyone’s personal tax situation will be unique, but in the majority of circumstances for average to high earners, capital gains treatment will lead to far lower tax liabilities than the equivalent dividends, especially if entrepreneurs relief applies. See our tax benefits of liquidation page for a simple example with numbers.
However, as liquidations were far more expensive (several thousand pounds) than a company strike off (£10 fee to Companies House) HMRC perhaps felt it a little unfair to force shareholders to go down the expensive option to obtain favourable tax treatment. By concession they therefore granted permission, if certain criteria were met, for the shareholder to obtain capital gains tax treatment on distributions from a company strike off.
This required a written application, and written approval, but provided the simple criteria were met (largely that tax affairs were up to date and you weren’t about to start doing the same thing again under a different company) approval seemed to be easy to obtain.
However, since 1 March 2012, ESC C16 no longer exists, and has instead been written into tax law. The law basically says if the assets to be distributed are less than £25,000, the shareholder can automatically get capital gains treatment on a strike off (no application required), but if the assets are above £25,000, the tax treatment will be as dividends.
Even following the new rules, assets distributed under a members voluntary liquidation are still taxed on the shareholder(s) as capital gains, which is why liquidations have suddenly become popular amongst solvent companies with cash in the bank. In turn, it’s why we’ve set up our offering to assist shareholders in this situation as affordably as possible.