A. You are referring to the Targeted Anti-Avoidance Rule (“TAAR”) which came into effect in April 2016 and which can in certain circumstances treat the proceeds of the winding-up as income rather than capital. In broad terms, the rules apply to individuals owning an interest of 5% or more in a close company and who have in the next two years an interest in or are involved in a business carrying on a similar trade or activity. On the face of it, your client could be caught but there is a further condition to be met for the TAAR to apply which is there has to be an income tax avoidance motive.
If your client can demonstrate the trading arrangements are dictated solely by commercial reasons then the TAAR ought not to apply although HMRC might be expected to take an interest.
If you have a tax query, why not contact the Tax Advice Line on 0844 892 2470 to discuss it. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
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