Statement of Practice D3
Published 31 March 1978
© Crown copyright 1978
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1. During the liquidation of a company the shareholders often receive more than one distribution. For Capital Gains Tax each distribution, other than the final one, is a part disposal of his shares by the shareholder, and the residual value of the shares has to be ascertained in order to attribute a proportion of the cost of the shares to the distribution (unless the inspector accepts that the distribution is ‘small’ and can therefore be deducted from cost). It has been represented to the Commissioners for HM Revenue and Customs (HMRC) that the making and formal agreement of these valuations is holding up the agreement of liabilities and that little if any change in the total tax is involved in the majority of cases.
2. Where the shares of a company are unquoted at the date of the first or later interim distribution, therefore, the HMRC Commissioners are prepared to authorise inspectors to accept any valuation by the taxpayer or his agent of the residual value of the shares at the date of the distribution, if the valuation appears reasonable and if the liquidation is expected to be completed within 2 years of the first distribution (and does not in fact extend much beyond that period). The valuation need not include a discount for deferment; and if the distributions are complete before the Capital Gains Tax assessment is made, HMRC will accept that the residual value of shares in relation to a particular distribution is equal to the actual amount of the subsequent distributions. In the normal way HMRC will not raise the question of Capital Gains Tax on an interim distribution until after 2 years from the commencement of the liquidation unless the distribution, together with any previous distributions, exceeds the total cost of the shares.
3. Where time apportionment (shares acquired before 6 April 1965) applies to a case within the scope of this practice, the Commissioners for HMRC are prepared to calculate the gain on each distribution by applying the time apportionment fraction as at the date of the first distribution without further adjustment under TCGA 1992 Sch 2 para 16(8).