The Transactions in Securities rules are anti avoidance, which among other things can prevent people benefiting from lower tax rates liquidating companies under certain circumstances.
The basic premise is you need to be actually ceasing to trade, the business properly stopping. This is as opposed to someone effectively continuing to do a very similar thing, just closing OldCo Ltd and opening up NewCo Ltd to continue with things, hoping to extract any excess cash tax efficiently along the way. The argument there is that whilst the legal entity may have changed, that was just a ruse, and the underlying business continued. Therefore the rules prevent the distributions being treated as capital gains (so no annual exemption, or entrepreneurs relief), instead they’d be taxed as dividends.
There was some clarification of the rules in late 2015, as previously there was a big question mark over how long a break might be required between closing OldCo and opening NewCo for it to be safe from suggestion it was considered continuing the trade. One of our directors, Chris, wrote a blog post here following the changes/clarifications made, as there was some talk at the time that MVLs would be completely killed off. The main reality is they’ve just put a timeline on it of 2 years. So if you liquidate a company, you need to leave it at least 2 years between getting the distributions before setting up a new company if you want to ensure the distributions are safe from challenge on the tax treatment.
There are ways you can start a new company within two years without falling foul of the rules. They tend to revolve around being able to demonstrate that tax was not a main motivator of the change. Eg maybe the new company is doing something completely different to the old one, and there are practical (non tax) reasons why it makes sense to do it under a new entity. Possibly you’ll be changing ownership, and for various reasons this couldn’t be achieved with the old company. Or maybe (and this one is perhaps the most risky) you’re happy that at the time of liquidating there were no plans to restart, but some unforeseen change in circumstances meant setting up a new company within 2 years was the best route to take.
Unfortunately we can’t give any guarantees over tax treatment, and cannot be held responsible if you don’t get the tax treatment you wanted following liquidating via ourselves. We can process the liquidation if you/your accountant feel it’s the best option, but you need to consider the tax benefits/risks yourselves. Also it seems unfortunately this is an area where HMRC have publicly said they won’t accept clearance requests…so if you do want to restart within two years, proceed with caution.
Provided you don’t fall foul of the transactions in securities rules, it leave HMRC little scope to argue you’re continuing the same business, leaving you safe to gain the benefit of entrepreneurs relief (assuming you meet the normal criteria) on cash extraction from your members voluntary liquidation.