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Number of Solvent Liquidations Rises Sharply

Number of Solvent Liquidations Rises Sharply

New research has a revealed a sharp rise in the number of solvent companies being wound-up, with numbers apparently reaching record levels in March this year.

In total, there were 2,663 solvent liquidations in March, over two-and-a-half times more than the previous record of 992 in April 2015. The monthly average for the 12 months prior to March 2016 was 768.

According to insolvency trade body R3, the rise is a result of changes to tax rules introduced on 6th April, which mean that directors winding up a solvent company can no longer claim Entrepreneurs’ Relief from the Capital Gains Tax (CGT) due on any gains if they continue to work in the same trade as that company in the next two years.

The change was introduced to prevent individuals avoiding income tax by ‘storing up’ profits in one company, winding it up and paying a reduced rate of CGT before starting again with a new company.

Entrepreneurs’ Relief on Capital Gains Tax sees the tax charged at 10% rather than the standard rate.

According to R3, numbers of solvent liquidations have been abnormally high since the very end of last year when the new rules were announced. Since the start of monthly records in March 2014, only five months have seen more than 900 solvent liquidations: December 2015-March 2016 accounted for four of these.

Solvent liquidations accounted for 66% of all liquidations in March, compared to an average of 35% over the previous two years.

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