Published: 02/09/2024 By Andrew Bailey
A members' voluntary liquidation otherwise known as an MVL or a solvent liquidation, is a procedure only available to a solvent company which enables the directors and shareholders to close down a company. A liquidator is appointed to take care of the MVL process by realising the remaining assets and discharging any remaining liabilities. The remaining funds can then be distributed to the shareholders and the company is then dissolved.The Liquidator has the ability to return funds to Shareholders as capital – which can have considerable tax advantages as all distributions will be capital repayments and subject to Capital Gains Tax (CGT) rules rather than salary or dividends. Directors who have been a director and shareholder of a company for at least 12 months, and the company traded in that period, can claim Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) which, when coupled with the personal allowance for CGT of £11,100.00, and with taxation currently at 10%, can be extremely favourable when compared to higher rates of PAYE.
As the political landscape shifts, the upcoming budget on 30 October 2024 raises significant questions about potential changes to various policies, including Business Asset Disposal Relief (BADR) and accordingly its availability via an MVL. This relief, is a crucial tax incentive that allows business owners to reduce their capital gains tax liability when selling or disposing of qualifying business assets.
As the summer holidays come to an end and in advance of the upcoming October budget we have seen increasing numbers of enquiries from directors and shareholders looking to benefit from the existing tax benefits via MVLs. With two months to go until the budget we would encourage anyone contemplating using the MVL route to release funds to revisit this now before it is too late.