How will the Autumn Budget impact Members’ Voluntary Liquidations?
The long-awaited Autumn Budget, announced on 30 October 2024, brought some important changes to Capital Gains Tax and Business Asset Disposal Relief that will impact how much tax you pay when liquidating a solvent limited company.
If you want to retire or no longer need your limited company, starting the solvent liquidation process now – before all the changes come in – could maximise the distributions you receive and reduce your tax bill significantly.
What happens during a Members’ Voluntary Liquidation?
Licensed insolvency practitioners appointed – A letter of engagement is signed, formally appointing a licensed insolvency practitioner to act as liquidator and advise you throughout the Members’ Voluntary Liquidation process.
Declaration of solvency signed – The declaration of insolvency is a legal document that must be signed to testify that your business is solvent, and therefore, able to settle liabilities in full within 12 months of the liquidation commencing, including interest, with enough funds remaining.
General meeting of shareholders held – A general meeting is held to allow shareholders to vote in favour or against the Members’ Voluntary Liquidation proposal. If 75% of shareholders vote in favour of the MVL, the insolvency practitioner takes control of the company, and the liquidation process commences.
Company liquidation commences – The company enters Members’ Voluntary Liquidation, the relevant documents are prepared and submitted, and parties are notified, such as HMRC and Companies House. The liquidation is advertised in the Gazette, making it a matter of public record and creditors are invited to submit their claims at this stage.
Funds distributed – Once confirmation is received that the company has no outstanding liabilities, capital distributions are made to shareholders, and the company is closed and removed from the Companies House register after three months.
Understanding the CGT and BADR tax changes
In the budget, Rachel Reeves, the Chancellor of the Exchequer, made significant changes to the rates of Capital Gains Tax (CGT) and Business Asset Disposal Relief. The move will tighten the gap between how income and capital are taxed and boost Treasury coffers by up to £14 billion a year.
- The main rates of Capital Gains Tax have increased for basic and higher-rate taxpayers to 18% and 24% respectively. The new rates will apply to disposals made on or after 30 October 2024.
- Business Asset Disposal Relief, a tax relief scheme that reduces the CGT payable on eligible disposals, will remain at 10% this year, before rising to 14% from April 2025 and 18% from April 2026.
What do the changes mean for company directors?
The increase in CGT and BADR tax rates means company directors will face higher tax bills when selling or closing their businesses.
Members’ Voluntary Liquidation (MVL) is usually the most tax-efficient way to close a solvent limited company with significant retained profits or valuable assets. That’s because the profits distributed among the shareholders are taxed as capital rather than income and are subject to a lower rate.
Before the budget, the basic and higher rates of Capital Gains Tax were 10% and 20%, with Business Asset Disposal Relief reducing the liability for higher-rate taxpayers to just 10%. Taxpayers were also eligible for an annual CGT exemption allowance of £3,000, and that remains unchanged.
Company directors will now pay Capital Gains Tax at 18% (basic) and 24% (higher). However, if you are eligible for Business Asset Disposal Relief (BADR), you will continue to pay 10% CGT on your profits when liquidating a solvent company until April 2025. After that point, the tax you pay on distributions will increase. Eligible individuals can continue to claim BADR on a cumulative lifetime limit of £1 million of qualifying gains.
Closing a solvent limited company after the Autumn Budget
These increases represent a welcome watering down of pre-budget speculation that the Chancellor could remove Business Asset Disposal Relief altogether. And although CGT rates have already increased, you still have time to obtain the maximum benefit under the existing Business Asset Disposal Relief rules.
Even after the phasing in of the BADR tax increases, a Members’ Voluntary Liquidation will continue to be the most tax-efficient way to close companies with more than £25,000 in retained profits. An MVL is a formal liquidation procedure that typically takes three to six months. Given that timeline, directors who have been putting off the closure of their companies would be wise to act now.
If your business has no assets or liabilities, Company Dissolution (also known as Strike Off) is likely to be the most cost-effective way to close it down.
Find out more about our solvent liquidation services or get in touch for a free consultation about the most appropriate closure method for your business and its implications.
How can Solvent Liquidations help limited company directors?
At Solvent Liquidations, we believe that closing a solvent business should be an expertly managed, stress-free process that guarantees the quick distribution of funds and a tax-efficient exit. Our team of licensed insolvency practitioners and company liquidation specialists are all you need to close a solvent company efficiently and with ease. We are the UK’s number one provider of company liquidation services and are trusted by company directors nationwide.
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Solvent Liquidation made a complex process feel simple. Their expertise and support throughout my MVL ensured a stress-free and positive outcome.
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The team at Solvent Liquidation were incredibly professional and efficient. They handled my MVL with care, making the entire experience straightforward.
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