Distributions on a company winding-up 10th August 2016 In the Budget earlier this year the Chancellor announced that there would be a new rule aimed at stopping tax avoidance when a limited company is wound up and funds are distributed to the shareholders. Where certain conditions are met, the distribution will be treated as income in the hands of the shareholders rather than capital, and therefore subject to income tax rather than the lower rates of capital gains tax. The legislation has yet to be enacted and guidance from HMRC is awaited which will hopefully reduce the uncertainty over when the conditions for the new anti-avoidance rule are met. In the meantime HMRC has published a standard letter which they will issue when requests for clarification are received. The letter contains three examples which go some way to explaining the circumstances when the new rule will be applied. As the difference between the income tax and capital gains tax rates is significant, detailed advice should be sought before a company winding-up is commenced.