Section 68

Section 68: capital gains on distribution of assets by companies in liquidation

Section 68 clarifies the capital gains treatment when a company in liquidation distributes its assets to shareholders - the company itself does not face a capital gains charge on the distribution, but the shareholder does, on the value received in excess of what is already taxed as deemed dividend.

No transfer at the company level

Section 68(1) provides that where the assets of a company are distributed to its shareholders on liquidation, that distribution is not regarded as a "transfer" by the company for the purposes of Section 67 (the capital gains charging section).

Taxation in the shareholder's hands

Section 68(2) taxes the shareholder instead: if a shareholder receives money or other assets from the company on liquidation, the shareholder is chargeable to capital gains tax on the money received, or the market value of the other assets on the date of distribution, reduced by the amount already assessed as deemed dividend under Section 2(40)(c). That resulting figure is treated as the full value of consideration for purposes of Section 72 (mode of computing capital gains).

Frequently asked questions

Does a company pay capital gains tax when it distributes assets on liquidation?

No - Section 68(1) says such a distribution is not treated as a "transfer" by the company for capital gains purposes.

How is a shareholder taxed when a company in liquidation distributes assets?

The shareholder is taxed on capital gains equal to the money received, or the market value of other assets received on the distribution date, reduced by the amount already treated as deemed dividend under Section 2(40)(c), per Section 68(2).