Moving away from the UK, withdrawing dividends and closing company

[zerosum]

why wouldn't GAAR be relevant?
It's entire purpose was to catch complex methods of legally avoiding tax. If their complexity can be demonstrated to have been done purely for tax avoidance, then it's caught by GAAR.

If you’re not tax resident and liquidate a company, you wouldn’t be eligible for BADR. But you also wouldn’t pay CGT because you’re not tax resident. You could therefore open the same kind of company again within two years. Just as someone who has never been tax resident can open and close companies without worrying about the UK treatment of disposals. I’m just referring here to trading companies, not investment/property.


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[Fred Bloggs]

I think Ramsay principle also applies here? There is no purpose to the transactions other than reducing or avoiding tax. HMRC will set aside the unnecessary or sham business transactions and judge tax liability by applying Ramsay principle?

[Lance]

I think Ramsay principle also applies here? There is no purpose to the transactions other than reducing or avoiding tax. HMRC will set aside the unnecessary or sham business transactions and judge tax liability by applying Ramsay principle?

GAAR legislation was introduced to provide a law for this so there is no longer a need for case law to be applied.

Caveat: Case law still counts and IANAL

But you also wouldn’t pay CGT because you’re not tax resident. You could therefore open the same kind of company again within two years.

I understand the first sentence. Can you provide any evidence that the second sentence is true? And why you think that they are linked?

"TAAR was introduced to prevent individuals lowering their tax liability by converting what would otherwise be a dividend into a capital payment by winding up their company."
Whether CGT is paid or not makes no difference to whether the winding up resulted in a capital payment. You're mixing jurisdictions as that suits your opinion.

[zerosum]

I understand the first sentence. Can you provide any evidence that the second sentence is true? And why you think that they are linked?

"TAAR was introduced to prevent individuals lowering their tax liability by converting what would otherwise be a dividend into a capital payment by winding up their company."
Whether CGT is paid or not makes no difference to whether the winding up resulted in a capital payment. You're mixing jurisdictions as that suits your opinion.

I see what you mean. But there is no tax liability (unless one is foolish enough to be caught by temporary non-residence, in which case all bets are off), so nothing can be lowered.

I.e. individual becomes tax-resident abroad. They wind down their company and/or deplete reserves via taking dividends. No tax is due in the UK (there is an option, for a time, to liquidate and pay BADR even if not tax-resident, but it is voluntary and done via a protective claim; this helps if one thinks one might move back and be caught by temporary non-residence). They can then open another UK company doing the same thing. There was no tax liability, no lowering of tax via one means of depleting the reserves vs. another, and therefore TAAR is not in scope.

[Lance]

There was no tax liability, no lowering of tax via one means of depleting the reserves vs. another, and therefore TAAR is not in scope.

assumption or fact? I don't know what the rules are, but do you? Or are you guessing what you think they ought to be?

[zerosum]

assumption or fact? I don't know what the rules are, but do you? Or are you guessing what you think they ought to be?

I took professional advice on this. It’s the temporary non-residence that’s the peril. After all, what tax advantage is being derived? You are not paying UK tax because you are not UK tax resident. In consequence, whether you are taking dividends, or making a disposal — it becomes somewhat semantic from HMRC’s point of view. Unless you elect to pay CGT on a liquidation and claim BADR relief. Then you can’t open a similar company within two years, but it becomes easier to move back. There are pros and cons to both.


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[NowPermOutsideUK]

I took professional advice on this. It’s the temporary non-residence that’s the peril. After all, what tax advantage is being derived? You are not paying UK tax because you are not UK tax resident. In consequence, whether you are taking dividends, or making a disposal — it becomes somewhat semantic from HMRC’s point of view. Unless you elect to pay CGT on a liquidation and claim BADR relief. Then you can’t open a similar company within two years, but it becomes easier to move back. There are pros and cons to both.


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Well in my case the reasoning is simple - If I take dividends I do not pay UK tax but I do have to pay Swiss tax

If however it is a CGT then I do not pay UK tax or swiss tax. So if there was a way to sell my £1 share for the market value to a connected party then that would help a lot..

I would love to hear from FredBloggs on this : Why then would a property moved from personal to Ltd be accepted because I know this is happening in many cases with accountants endorsements and recommendations given the reason for doing this is pure tax optimisation and section24 avoidance

"I think Ramsay principle also applies here? There is no purpose to the transactions other than reducing or avoiding tax. HMRC will set aside the unnecessary or sham business transactions and judge tax liability by applying Ramsay principle?"

[Iliketax]

why wouldn't GAAR be relevant?
It's entire purpose was to catch complex methods of legally avoiding tax. If their complexity can be demonstrated to have been done purely for tax avoidance, then it's caught by GAAR.

The GAAR is targeted at things that are abusive. Here the tax "magic" is not being resident in the UK and not being temporarily non-resident in the UK. It is not selling company A to company B, with the consideration being left outstanding/deferred. That is something that is within the scope of the transaction in securities rules. But Parliament has said that a non-resident individual who is not temporarily resident in the UK and who is not holding the proceeds in a fiduciary capacity is not subject to tax on this income.

[Iliketax]

GAAR legislation was introduced to provide a law for this so there is no longer a need for case law to be applied.

No. The exiting case law on anti-avoidance is a still very relevant. That has not changed. The GAAR is extra.

[Iliketax]

I think Ramsay principle also applies here? There is no purpose to the transactions other than reducing or avoiding tax. HMRC will set aside the unnecessary or sham business transactions and judge tax liability by applying Ramsay principle?

The Ramsay principle always applies. It is basically:

Step 1: Look at what the law says - what did Parliament intend when it chose those words?

Step 2: Look at the facts - should an individual transaction be considered as part of a wider context?

Step 3: In light of the first two steps, how does the law apply to these facts?

So selling company A with lots of retained earnings to company B (another company owned by you) with the consideration left outstanding is within the scope of the transaction in securities rules. Apply the Ramsay principle and nothing changes, income still arises. But this income is not taxable on someone who is not resident and not temporarily non-resident. Apply Ramsay to that and they still won't pay tax.