Owners of companies who are thinking of retiring and unlocking the surplus assets in their companies through liquidation should start their planning now.

The Chancellor has advised that the Finance Bill 2016 will contain provisions which will, in many cases, impose an Income Tax charge on those seeking to use the liquidation route to realise assets in family companies. Such distributions are currently taxed as capital gains.

The charge will apply to ‘close companies’ (or those which have recently been close companies) where the trade is carried on afterwards in some form by the person receiving the distribution.

Also, for the charge to apply, tax avoidance must be one of the aims of the distribution.

The tax rates may run as high as 38 per cent, which contrasts badly with the 10 per cent tax rate available when Capital Gains Tax applies and ‘entrepreneurs’ relief’ is claimed.