WHAT ARE LIQUIDATING DIVIDENDS? Dividends are a share of a company’s profits that is paid to shareholders, usually annually, based on the number of shares held by each individual shareholder. The value of a share is based on its market value, i.e. how much each share is worth according to the financial markets. So, for example, if the market values each share at
£3
and a shareholder holds 1,000 shares, they will receive a dividend of
£3,000.
These are known as regular dividends and are paid from the company’s retained earnings, i.e. the profit made in that year of operation. However, if a solvent company is being liquidated, shareholders will receive what are known as liquidated dividends.
WHEN ARE LIQUIDATING DIVIDENDS PAID? Liquidated dividends are paid when a solvent company is closed down, i.e. liquidated, through a members’ voluntary liquidation process (MVL).
TAX IMPLICATIONS ON DIVIDENDS When a company goes through the MVL process, because its distributable assets are paid as a capital distribution, they will incur capital gains tax rather than income tax. Therefore, it is subject to a rate of tax that is different from your income tax band.
If you are considering winding up a solvent company that is no longer needed or the directors wish to retire, or you are a shareholder looking for advice on liquidating dividends, the first step is to seek professional advice. Our highly experienced professionals at Leading UK are on hand to help on any of these issues.
Information source https://www.leading.uk.com/