Company liquidations Relief can apply on the liquidation of a company, provided the company was carrying on a qualifying business up to the time the liquidator was appointed, and the liquidation was completed within a reasonable period of time. For this purpose, Revenue will regard a period of 2 years as being reasonable.
I'm winding down a company, professional services, decent cash on account. Very few assets. Going to take a break for a year, and reset into a partnership in similar profession.
I have a question regarding Entrepreneur relief. We have a limited company with cash & premises. Could we avail of relief and liquidate A ltd and still continue with current business under a different limited company?
Thanks AAA
Seems I need a specialist advisor. It sounds like many opinions on subject
We do tick all the boxes for getting it.
Can a share buyback count for relief? Say company has NAV of €1.5m and this is cash with no liabilities. 150 shares in issue all owned by one person Would a buyback of 100 shares qualify? Seems very aggressive but not sure I can see why it wouldn't other than anti-avoidance?You may not be able to avail of Entrepreneur Relief (ER).
I assume you meet the conditions for ER - working time, own 5%+, ltd co is a trading company, and shares owned for more than 3 yrs. Check this.
Does ER apply in a liquidation scenario? It can, assuming it meets the conditions in paragraph 2b.8 in the Tax & Duty Manual on ER:
However, anti-avoidance legislation could potentially cover this type of scenario.
Funds could be taken from A Ltd as a dividend subject to income tax rates. Instead, CGT is being sought on this transaction (@ much lower rates than income tax).
Revenue will look at the shareholding of "A Ltd" pre-liquidation and compare to the shareholding of the "different limited company". If there was no significant reduction, the liquidation proceeds could be deemed a distribution (and liable to income tax and not CGT).
The legislation does provide that the anti-avoidance provision will not apply where there are bona fide commercial reasons for the scheme.
Definitely worth getting professional advice on this.
Can a share buyback count for relief?
Say company has NAV of €1.5m and this is cash with no liabilities. 150 shares in issue all owned by one person Would a buyback of 100 shares qualify?
Very helpful, thank you very much.In principle, yes. As per the Tax & Duty Manual I referenced in post #9 above:
"Relief can apply where the share buyback is within the charge to CGT." (my emphasis)
The question is whether this transaction would be considered a distribution subject to income tax or whether it would be subject to CGT.
Let's assume for this example that share capital of only a nominal amount was subscribed for upon incorporation (relevant to (a) below).
Section 130(2)(b) TCA 1997 ensures that anything distributed out of the assets of a company (whether in cash or otherwise), in respect of shares in the company, is a distribution, except so much of it, if any, as
(a) represents a repayment of capital on the shares, or
(b) is, when it is made, equal in amount or value to any new consideration received by the company for the distribution.
Source: Page 6 here https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-06/06-02-02.pdf
So, per first principles, this transaction is a distribution and subject to income tax.
Is it possible to get CGT treatment on a share buyback by an unquoted company?
It is, provided certain conditions are met.
Section 176 TCA states that references in the Tax Acts to distributions of a company, shall be construed so as not to include references to a payment made by a company on the redemption, repayment or purchase of its own shares if the company is an unquoted trading company and certain conditions are met. See page 4 here:
In the transaction proposed, the vendor (disposing shareholder) held 100% of the shares pre-buyback (150/150).
Post buyback they still hold 100% (50/50).
This is no different in substance to a dividend. With a dividend cash leaves the company but there is no change in shareholding %.
The same thing is happening in this transaction. Cash has left the company, the shareholder still owns 100% and is still connected with the company. You can see that condition "(g)" on page 4 is not met (condition "(h)" too).
If the conditions were all met and CGT treatment allowable on the transaction, only then would you start looking at Entrepreneur Relief to see if the conditions for that relief were met.