Closing a family investment company: what it costs in tax, and how to plan it.

Yes. A solvent company can be wound up in a members' voluntary liquidation, where a licensed insolvency practitioner realises the assets, pays the debts, including any shareholder loans, and distributes what is left to the shareholders. The tax outcome depends on how the assets are dealt with, who the shareholders are, and what they do afterwards. It is worth planning well before the decision is taken.

A distribution of share capital in a winding up is not an income distribution, so it is normally taxed as a capital gain on the shares, not as a dividend. For an individual that means capital gains tax at 18% or 24% (2026/27) on the gain over the cost of the shares, after the annual exempt amount. An anti-avoidance rule can turn it into income, so planning matters.

It is a targeted anti-avoidance rule in section 396B of the Income Tax (Trading and Other Income) Act 2005. It treats a winding-up distribution as a dividend, taxed at dividend rates, where four conditions are all met: you held at least 5% of the company, it was a close company, within two years you carry on a same or similar activity, and a main purpose is to avoid or reduce income tax.

It might. The third condition looks at whether, within two years after the distribution, you are involved in carrying on a similar trade or activity. It refers to an activity, not only a trade, so continuing to invest, or starting a new investment company, can meet it. HMRC's view on investment companies is not settled, so we take advice on each case, and the main purpose test is also part of the analysis.

No. The relief requires a trading company, or the holding company of a trading group, throughout the two years before the disposal. A company that exists to hold investments does not meet that test, so shares in an investment FIC don't qualify, including on liquidation. The rate if it did apply is 18% from 6 April 2026, with a £1m lifetime limit, so don't plan on it.

Yes. A company pays corporation tax on its chargeable gains, not capital gains tax. A close investment-holding company pays 25%. There is no indexation allowance for growth after 2017, and companies have no annual exempt amount. The gain is taxed in the company first, and the shareholders are then taxed on what they receive, which is why closing a FIC with large gains can be expensive.

Because there are potentially two layers of tax. The company pays corporation tax on gains it realises when it sells investments, and the shareholders pay tax on the distribution. Unlike assets held personally, assets inside a company do not get a tax-free uplift when a shareholder dies. This is one reason we look at the exit when we design the company, and are honest about it.

It is repaid first. The loan is a debt owed to the parents, so the company repays it before anything is distributed to shareholders. Repaying the principal is not taxed as income. Any interest charged is taxable to the lender. If the company does not have enough cash, assets may have to be sold, which is when corporation tax on gains can arise, so we plan the order of repayments.

The trustees receive the winding-up distribution on the shares they hold. It is normally capital, and trustees pay capital gains tax at 24%, with a smaller annual exempt amount. If the trustees then pay cash or assets to a beneficiary, an inheritance tax exit charge, of up to 6%, can apply. The amount depends on the trust's history, so we model it before a decision.

Possibly, but a distribution of assets in kind is not simply a transfer. It can be a disposal by the company, with tax on any gain, and for UK property stamp duty land tax and other costs can arise. The shareholders then hold the assets personally, and the tax position of each is different. We compare a sale and a distribution in kind before recommending either.

Often, yes. Repaying the loan, paying dividends over time and leaving the company in place can avoid a large single charge and keep the structure available for later generations. Closing makes sense where the company has no further purpose, where the costs outweigh the benefits or where the family wants to simplify. We compare running down and closing using the family's figures.

It can. On death, the shares are treated as acquired at market value by the personal representatives, with no capital gains tax on the increase. Assets inside the company keep their original cost. A liquidation after death can therefore produce little gain on the shareholder's shares, while the company's own gains are still taxed. The timing and the inheritance tax position both need to be reviewed together.

A dormant company with no assets and no debts can sometimes be struck off, but a company holding significant assets is not a good candidate. A formal liquidation gives certainty about the tax treatment and who receives what, and is the normal route for a solvent FIC with value in it. Using the wrong route can leave tax and legal loose ends, so we advise on the choice.

The shareholders' agreement and the articles should say. Typically the other family shareholders, the trust or the company have the right to buy the departing shareholder's shares at a valuation method agreed in advance. Closing the whole company because one member wants to leave is usually a poor outcome, so we build an exit route into the documents when the company is set up.

For a solvent winding up of a company with assets, you will normally appoint a licensed insolvency practitioner as liquidator. The shareholders pass the resolutions and the directors make a declaration about the company's ability to pay its debts. We coordinate the tax planning with the liquidator and the family's accountant and solicitor, so the steps happen in the right order.

Gifts of shares made earlier remain separate transfers, and the seven-year clock on them is not reset by closing the company. What changes is where the value sits afterwards: assets distributed to the children are in their hands, assets paid to the parents come back into their estate, and the loan repayment is cash the parents hold. We review the inheritance tax position before closing.