Members’ Voluntary Liquidations (MVLs) – what does the future hold?

A Members’ Voluntary Liquidation (MVL) is a popular closure route for solvent companies due to the associated tax advantages. The formal liquidation procedure lets company shareholders extract and distribute retained profits in a tax efficient manner.

The key tax benefits of an MVL are expected to come under the hammer in the Autumn Budget 2024, such as Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief.

Tom Procter, an MVL specialist at Solvent Liquidations, runs through the Members’ Voluntary Liquidation process, the tax advantages of an MVL, and how MVLs could change following the Autumn Budget.

Scroll down to find out how CGT (including BADR) rates changed as a result of the 30th October budget.

What is a Members’ Voluntary Liquidation?

A Members’ Voluntary Liquidation is a formal closure route for a solvent limited company that’s no longer required. An MVL is handled by a licensed insolvency practitioner who liquidates the company, distributes retained profits, and brings company affairs to a close.

As a rule of thumb, your company must have retained profits over £25,000 for an MVL to be cost-efficient.

When considering the most effective way to close a solvent company, the MVL fee which includes appointing a licensed insolvency practitioner must be accounted for. The company must have enough funds remaining once this fee is paid.

The tax treatment of an MVL

An MVL is suitable for cash or asset rich businesses as it enables shareholders to extract considerable profit from a company in an extremely tax-efficient fashion.

Here are the key tax advantages of closing a company via an MVL:

• Capital distributions – Any profit extracted from the company is treated as capital and therefore, subject to Capital Gains Tax. This is more tax advantageous than funds being treated as income which will be subject to Income Tax.
• Business Asset Disposal Relief – You can reduce your tax liability further if you qualify for Business Asset Disposal Relief.

These two areas are expected to come under attack at the Autumn Budget which could reduce the tax savings made through an MVL. If you plan to liquidate a solvent company through an MVL, err on the side of caution and take prompt action.

Autumn Budget 2024 – how are MVLs likely to change?

This section has been updated by ByteStart following the 2024 Autumn Budget.

The Chancellor of the Exchequer, Rachel Reeves, is undertaking a full-scale cost-cutting exercise after a £22 billion black hole in the nation’s finances was discovered. CGT and BADR have been the topic of much controversy in the run-up to the Autumn Budget as a quick solution for raising funds for the Treasury.

CGT rates – The gap between Capital Gains Tax and Income Tax has been reduced, in addition to the Annual Exempt Amount (AEA) which has already been reduced.

The main rates of CGT have risen from 10% to 18% (basic rate) and from 20% to 24% (higher rate) – effective immediately (from 30th October 2024).

BADR – If you qualify for Business Asset Disposal Relief, this reduces CGT to a 10% flat rate.The Chancellor announced that this rate will increase to 14% from April 2025 and to 18% from April 2025.

The lifetime BADR allowance remains unchanged at £1 million.

You can read the full details of the CGT changes announced in the Autumn Budget here.

An MVL is a popular liquidation solution for solvent companies as it’s a controlled process that enables shareholders to release cash quickly and efficiently. While an MVL will continue to offer a tax-efficient exit route to solvent companies, the savings have been reduced following the Autumn Budget.