Credit, Collections & Insolvency News
The goalposts for Members’ Voluntary Liquidation taxes are changing as announced in the Autumn Budget, Labour’s first major fiscal announcement since coming into power. As the government set out to raise a record £40 billion through tax rises, Capital Gains Tax and Business Asset Disposal Relief, both crucial to an MVL, came under the firing line.
A Members’ Voluntary Liquidation is a popular liquidation procedure as it provides a seamless exit route from a solvent limited company to company directors. An MVL provides a highly tax-efficient solution to exiting company directors in search of tax favourable ways to extract funds, and continues to uphold this advantage, despite the increase in MVL taxes.
What’s changing with Members’ Voluntary Liquidations?
When closing a solvent limited company through the Members’ Voluntary Liquidation route, distributable profits are treated as capital, rather than income, and therefore, subject to Capital Gains Tax which allows for funds to be extracted in a highly tax-efficient manner. Following the Autumn Budget, Capital Gains Tax increased from 20% to 24% for higher rate taxpayers and 10% to 18% for basic rate taxpayers, directly impacting the tax efficiency of a Members’ Voluntary Liquidation.
If a business qualifies for Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, they can access Capital Gains Tax at a reduced rate of 10% to trim their tax liability. Individuals can claim BADR on qualifying gains up to a lifetime limit of £1 million.
Here’s how and when Capital Gains Tax rates available under BADR will increase:
April 2025 – 10% to 14%
April 2026 – 14% to 18%
While the increase in Capital Gains Tax raises the tax bill for those seeking a solvent company liquidation, a Members’ Voluntary Liquidation remains highly attractive.
The Chancellor of the Exchequer, Rachel Reeves, explained during the Autumn Budget announcement that a significant gap between CGT and Income Tax will be consistently maintained to encourage entrepreneurs to continue to invest in their businesses.
What do MVL tax changes mean for company directors?
Company directors considering closing a solvent limited company may revise their plans and liquidate now to beat the April 2025 rule change when the BADR CGT rate will increase from 10% to 14%. If a solvent liquidation is on the cards for 2025/2026, an MVL may be pursued earlier to avoid a greater tax bill once the rate increases to 18% from April 2026.
In 2023/24, CGT raised £14.5 billion, and here are the forecasts for the upcoming years:
2024/25 – £15.7 billion
2025/26 – £16.2 billion
2026/27 – £18.9 billion
The largest share of capital gains tax is contributed by a small number of taxpayers who make the largest gain. In 2023/23, 41% of receipts came from individuals who made capital gains of £5 million or more in that year which accounts for less than 1% of CGT taxpayers. As plans to raise record funds set into motion, company directors considering a solvent liquidation must act sooner, rather than later, to save on tax.
