Welcome to the latest in our continuing series on Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR).

We looked at the history of CGT to see how and why it has developed how it has as well as what the future of CGT could look like as well as the immediate threat it could face in the near future. 

In this blog we’ll look at the best option for directors and entrepreneurs who want to take advantage of CGT while they can by closing their business on their own terms. 

That’s through a Members Voluntary Liquidation (MVL). 

What is a Members Voluntary Liquidation? 

The first Autumn Budget is scheduled for October 30th – so CGT and BADR could just have weeks left in their useful existence for you to claim if you close your solvent business through this method. 

But there are many other reasons why you should consider an MVL.

Why choose a Members Voluntary Liquidation?

The advantages of an MVL fall into several different categories:-

  • Financial
  • Administrative/Legal
  • Strategic
  • Personal

Financial advantages

Tax efficient – the prime advantage of an MVL is the potentially substantial tax savings it can offer. Distributions to shareholders under the terms of an MVL are typically treated as capital gains rather than income. 

This is currently taxed at a lower rate and combined with Business Asset Disposal Relief (BADR – formerly known as Entrepreneurs’ Relief) would potentially reduce that CGT tax rate further.

Quicker access to funds – an MVL allows for the most efficient distribution of a company’s assets to its shareholders. From beginning to end the process is usually often quicker than other methods of closing a business. 

Administrative/Legal advantages

Formal closure – An MVL provides a proven, structured and 100% legally compliant method for closing a business. Directors and shareholders can relax knowing that the company will be closed down correctly and finally. 

Protection from future liabilities – As an MVL formally ends the company’s legal existence, directors are protected from any potential future liabilities that could be associated with the business including compulsory investigations into directors actions.

Resolving outstanding disputes – If there are any outstanding creditor claims or other financial disputes then the professional insolvency practitioner appointed, by the directors, at the beginning of the process will be able to help resolve them quickly and efficiently.

Strategic advantages

An orderly exit – As an MVL is a controlled and planned way to exit a business, it allows for a smooth wind-down and transition for employees, customers and suppliers alike.

Releasing capital – By closing a business and distributing assets to shareholders, an MVL is an effective vehicle to free up capital that can be used to power other business ventures or strategic investments.

Personal advantages

Retirement – Business owners looking to retire after a long career will often find that an MVL is the most attractive method of extracting their investment in a planned, tax-efficient way

Change – Even if principals and shareholders are not retiring but instead eyeing other opportunities then an MVL will provide a clean break from one venture to another. 

Natural ending – not every business or enterprise is set up to make a perpetual profit. Some reach the end of their natural lifespan or they achieve their mission ahead of time. An MVL will tie up all loose ends satisfactorily once a company has fulfilled its purpose. 

Selling – Your accountant will be able to advise you more specifically but in certain cases, an MVL can be a more tax-efficient alternative to selling a business as a going concern.

As with every other insolvency process, certain important considerations need to be worked through by directors before they make their final decision. 

While an MVL brings potential financial advantages there are also other considerations to be accounted for. 

It is a legal insolvency process that is only available and suitable for solvent companies and involves professional fees payable to the insolvency practitioners.

With Rachel Reeves’ first budget as chancellor within sight and all indications pointing to big changes to CGT, it’s important directors make decisions sooner rather than later. 

Get in touch with us today and start planning the next stages of your career – while you still hold all the cards.