Holdco has a share capital of £1m and one shareholder - an individual. Holdco owns Subco, a trading company, which has share capital of £1, the balance being funded by intercompany loan of £1m, and accumulated profits of £200k.
The shareholder would like his capital back.
If Holdco is liquidated and its assets distributed - in capital fashion - to its shareholder, these assets would amount to £1.2m in total, being an intercompany loan of £1m, plus shares in Subco worth £200k.
I think this would cause us to fall foul of the 'no phoenixing' anti-avoidance rules, but a prior distribution of the £200k of accumulated profits to the shareholder should allow capital treatment?
Thereby the shareholder is able to extract future profits on the £1m loan tax free, and has suffered a total tax bill of 38.1% on £200k.
Where are the flaws in this clever plan, please? Thanks
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