Relocating from UK to NL

[lynx]

My wife (Dutch) and I (British) are directors and 50% shareholders of a UK limited (service) company with a few hundred set aside having adopted the practice of low salary and dividends up to higher rate. We have a partially paid off mortgage on a UK house.

Up until recently I had intended to use the spare cash to issue a loan to repay our mortgage (employing the minimum interest rate set by HMRC and paying the tax which is refunded on loan repayment).

However we now want to permanently relocate to the NL and set up the equivalent company structure in NL (BV).

Ideally we would like to get access to the cash in the business to help with purchasing a house in NL.

In any case, we want to keep the service business running, but under the new Dutch BV.

I have been looking into MVL and Entrepreneurs' Relief. This would have the advantage of a clean break - avoiding hellish double tax and freeing up cash to use with purchasing the house.

Regarding the condition stipulated in CTM36305:

"Condition C: the individual receiving the distribution continues to carry on, or be involved with, the same trade or a trade similar to that of the wound up company at any time within two years from the date of the distribution"

CTM36305 - Company Taxation Manual - HMRC internal manual - GOV.UK

Is that limited to UK trade such that permanently relocating to the NL, winding up the UK limited company, continuing the same service from NL, and not returning to the UK, does not fall foul of this?

I should be grateful for any specific references to HMRC guidance for any answers on this point.

If the MVL strategy would not work for us then I would be interested in thoughts as to how to continue service in NL and transfer / extract cash for use in NL either personally or via the NL business.

I am also interested in whether we can set up the Dutch BV now to help facilitate smooth transfer.

[WordIsBond]

You are not closing the company to gain a tax advantage, you are closing the company because you are leaving the UK. Therefore, the two year provision is moot.

The legislation is pretty clear that there is no problem if you aren't closing it to gain a tax advantage, and this seems a slam dunk. It also seems extremely unlikely that HMRC would ever challenge or pursue the matter -- how are they going to know that you are opening a new NL company? I wouldn't volunteer the information, if asked I'd just say that you are moving to NL and that's why you are closing the company.

But even if they knew, I can't see that they would challenge this.

[WordIsBond]

Finance Act 2016

There's the legislation. Note that Conditions A-D must be met, and note Condition D. To challenge this they would have to argue that, having regard to all circumstances, it is reasonable to assume that a main purpose for winding up the company is to gain a tax advantage.

Your answer is that the only purpose for winding up the company is because you are leaving the country and establishing residency overseas.

Assuming you actually do leave the country, they'd be laughed out of any tribunal if they tried to argue that wasn't the main purpose.

[lynx]

Finance Act 2016

There's the legislation. Note that Conditions A-D must be met, and note Condition D. To challenge this they would have to argue that, having regard to all circumstances, it is reasonable to assume that a main purpose for winding up the company is to gain a tax advantage.

Your answer is that the only purpose for winding up the company is because you are leaving the country and establishing residency overseas.

Assuming you actually do leave the country, they'd be laughed out of any tribunal if they tried to argue that wasn't the main purpose.

Thank you for the thoughts and linking in the legislation. It seems clear to me regarding Condition D, but less clear regarding Condition C:

(4)Condition C is that, at any time within the period of two years beginning with the date on which the distribution is made—

(a)the individual carries on a trade or activity which is the same as, or similar to, that carried on by the company or an effective 51% subsidiary of the company,

It does not specify "carries on in the UK" but is that implicit?

Is there any other reference or case that might help confirm this point?

Update: I re-read your posts. Regarding your point that Conditions A-D must be met:

(1)For the purposes of this Chapter, a distribution made to an individual in respect of share capital in the winding up of a UK resident company is a distribution of the company if—

(a)Conditions A to D are met, and

Is it clear that for the Entrepreneurs' Relief NOT to apply, ALL of Conditions A to D need to be met? I am not exactly sure what is meant by:

"For the purposes of this Chapter, a distribution made to an individual in respect of share capital in the winding up of a UK resident company is a distribution of the company if—"

Further question:

Might I open the Dutch BV now (to help safeguard against loss of work visa post Brexit) without any impact on the above?

[WordIsBond]

I am not an accountant or a lawyer. I suspect some of our accountants will come along after the holiday and confirm.

That said, I don't think I can be mistaken on this one. If Conditions A-D are met, the distribution in a winding up is a distribution of the company -- a dividend. If they are not met, it is a capital distribution instead, thus eligible for capital gains treatment and ER.

Thus, though condition C may well be met by an overseas trade, if you are actually moving overseas condition D would clearly fail and the distribution is not a dividend, but a capital distribution.

Re: your followup question, I can't see how what you do with opening the NL company would be relevant. Document your reasoning now just in case it is somehow brought into question later -- you opened it at this time for visa reasons, nothing to do with tax.

I probably would avoid using the NL company until you move, however. That makes the break really clean as far as the UK MVL is concerned. UK company while in the UK, closed it when leaving (thus MVL), NL company once in NL. Nice, clean story that even HMRC can understand. Opening it early might cause them to ask why but when you say it was to prevent post-Brexit problems and you opened it in January I can't imagine even the worst inspector of taxes doing anything but moving on.