Under the Transactions in Securities (TIS) rules, certain close company distributions are charged to Income Tax instead of under the Capital Gains Tax (CGT) regime. 

Subscribers see Transactions in Securities for your detailed version of this guide.

This is a freeview 'At a glance' guide to the 2016 changes to the Transactions in Securities Legislation (TiS).

Finance Act 2016 amended the TIS rules so that:

1. They have wider application to counteract a tax advantage when a person receives consideration as capital rather than income.

  • The TIS rules are amended so that the rules apply if the main purpose or one of the main purposes of a transaction is to enable any person, not just one who is a party to the transaction, to obtain a tax advantage.
  • The list of TIS is extended to include a repayment of share capital or share premium and a distribution on a winding-up.
  • Transactions involving a fundamental change in ownership of a close company are only excluded if after the transaction the individual plus associates hold 25% or less of the company.  
  • See Transactions in Securities (subscriber guide)

2. A Targeted Anti-Avoidance Rule (TAAR) applies to distributions in respect of share capital in a winding up.

  • In order to combat Phoenixing, a distribution from a winding-up will be taxed as if it were an income distribution, where four conditions are met:
    • The individual holds at least a 5% share in a close company.
    • Following receipt of a distribution on winding up they continue to be involved, directly or indirectly, with the carrying on of the same or a similar trade or activity to that of the wound-up company.
    • The main purpose, or one of the main purposes, of the arrangements as a whole, is to obtain a tax advantage.
    • Although not specifically within the TIS rules, the TAAR will, when it applies, result in an Income Tax charge arising where capital gains tax might otherwise have applied.
    • See TAAR: Distributions in a winding up and use our TAAR tool to see if the rules apply.

3. The procedure by which HMRC can seek to counteract a tax advantage is simplified.

  • The process is made more similar to the self assessment enquiry process.
  • HMRC can enquire into a transaction if they believe that the TIS provisions apply by issuing a notice of their intention to enquire.
  • HMRC can then counteract the advantage by making adjustments and issuing a counteraction notice.

Clearance Applications

  • There is no specific clearance procedure for the TAAR.
  • In the absence of guidance on the new legislation and the application of the TAAR, HMRC has produced three examples to illustrate how the "main purpose" test might be applied, see Transactions in Securities: Case studies.

Useful guides on this topic

Transactions in Securities (subscriber guide)
This note examines the rules for an Income Tax advantage from the perspective of shareholders.

TAAR: Distributions on winding up (anti-phoenixing rules)
When does the TAAR apply? Who does it affect? Can you apply for tax clearance? Do the rules affect striking off?

Transactions in securities: Case studies
This guide contains potential case studies for the Transactions in Securities  (TiS) rules. 


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