Alert for Entrepreneurs: Potential Changes ahead for taking money out of a company

The government has proposed changes to how shareholders are taxed when they take value out of a company. The rules are decades old, and HMRC wants to close the gap between payments taxed as capital gains (lower rates at up to 24%) and those taxed as income (higher rates at up to 47%). Nothing has changed yet but the direction of travel matters if any of the situations below apply to you.

Blick Rothenberg has been invited to input into this consultation.

Five scenarios where this could impact you

1. You are inserting a holding company and planning to extract value afterwards. The headline proposal targets putting a holding company on top of your trading company so that a later buyback or capital reduction is taxed largely as a capital gain (top rate 24%, sometimes less with reliefs) rather than as income. The consultation seeks to tidy up the accounting rules on this. The change would tax almost the whole amount as income instead. If you have a transaction like this in mind, it’s worth acting while the current rules still apply.

2. You are thinking about splitting he business (a demerger) or splitting a business between owners. There are various commercial reasons for doing this such as carving out businesses or for succession. One common route to separate a business without a tax charge could be closed off, but in exchange the government wants to make the official “statutory” demerger relief easier to use- including for investment (not just trading) businesses and for family succession. If a split is on your horizon, the rules you’d rely on are likely to change.

3. You are selling shares back to your company as you step away. The relief that lets a departing shareholder be taxed at capital rates would be clearer with a more mechanical set of conditions: broadly, a 5%+ holding held for two years, having worked in the business, a full exit of shares and any directorship, and no return within five years (longer where family is involved). Therefore, phased or partial exits need careful planning.

4. You hold shares in, or borrow from, a company based outside the UK. Two changes are aimed here: bringing the tax on payments from overseas companies into line with UK ones and introducing a charge that would be payable by you personally where there are long-term loans from closely held overseas companies that currently escape tax.

5. You are a director or shareholder of a private company and a dividend or buyback was done incorrectly.

HMRC wants to tidy up the messy tax position that arises when a distribution turns out to be invalid, including rules to avoid the same amount being taxed twice.

What should you do now?

There is no immediate change and no need to act hastily. But if any of the above is on your radar:

Transactions in the pipeline: buybacks, capital reductions, demergers and reorganisations are best reviewed while today’s rules apply, as changes like this can sometimes take effect from the date they’re announced.

Overseas structures: worth checking how the proposals would affect future extractions or existing loans.

Have a say: the consultation is open until 14 September 2026, and there’s real scope to flag where the proposals would catch ordinary commercial activity.

Blick Rothenberg will be actively participating into this consultation and would be happy to talk through how any of this applies to your situation.

Would you like to know more?

If you have any questions, please get it touch with your usual Blick Rothenberg contact or Malli using the form below.

This is a general summary of an open consultation, not tax or legal advice. The proposals may change before becoming law. Please take specific advice before acting.