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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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On my husbands death, 5 years ago, I inherited his 100% shareholding

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On my husbands death, 5 years ago, I inherited his 100% shareholding in a Ltd Co which was valued at £600k in his Will. I have traded since that time but the current value of the Co has reduced to £400K and I wish to effect a Voluntary Liquidation to wind up the Company. As I have made a loss of approx. £200k how do I stand with CGT and is the Entrepreneur Relief facility of any use to me?
Pamela Khan

Entrepreneurs' relief which you can read about here only applies to a situation where a gain is made by an individual who sells their shares in a business at a profit. As the shares you inherited appear to have been worth £600,000 when you inherited them and that figure is your base cost for Capital Gains Tax purposes, if you sell the shares or wind the company up you will make a loss of £200,000. ER wouldn't apply and there would be no CGT to pay.

All you would be able to do with a capital loss of £200,000 is use it against other gains you make in the same tax year or in future tax years. Such a loss can only be offset against income where the shares have become of negligible value which they appear not to have done.

You need to be careful with an informal winding up, particularly if the company has accumulated undistributed profits. New rules that come into being in early 2012 limit capital distributions from companies wound up in such a way to £25,000 with the balance being taxed as a dividend. That would clearly subject you to higher rate tax if you distributed £400,000 in cash.

If you go through a members voluntary winding up as described here, then whilst it will be more expensive in terms of fees, it will allow you to take a capital distribution as opposed to a dividend. Take a look here and here for more information. The second link may not work. If it doesn't look here and click on "Don't dream it's over". You should have an accountant or tax adviser look at the company situation in some detail before you embark on a course of action.

I hope this helps but let me know if you have any further questions.
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