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ACCA Strategic Professional · Advanced Taxation (UK) · Alternative ways of achieving personal or business outcomes and their tax consequences

Omar owns all the shares in Delta Ltd, a trading company. Delta Ltd sells its business assets at a gain and Omar then liquidates the company, receiving the net proceeds. Which statement best describes the tax position compared with a direct sale of the shares by Omar?

The company pays corporation tax on the gains from selling its assets, and Omar is then taxed again on the liquidation proceeds as a capital disposal. This double layer of tax is the main disadvantage of an asset sale compared with Omar selling his shares directly.

  1. AThe company pays corporation tax on the gains, and Omar is then taxed on the liquidation distribution as a capital disposal, creating two layers of taxCorrect
  2. BOnly Omar is taxed, because the asset sale gains are exempt for the company
  3. COmar is taxed on the asset sale gain directly, with no company-level tax
  4. DThe company is not taxed if Omar claims business asset disposal relief on the asset sale

Explanation

An asset sale by the company gives a corporation tax charge on its gains. The remaining proceeds are distributed on liquidation, and Omar is taxed on that as a capital disposal. This double layer is why a share sale often gives a lower overall tax cost. Business asset disposal relief is a shareholder relief and does not remove the company's tax.

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