Worried about possible upcoming changes to CGT? Start your MVL now

Members’ Voluntary Liquidation (MVL) is a process used to close a solvent company, meaning it can pay all its debts. During MVL, the company’s assets are sold off, and any remaining funds are distributed to the shareholders. It’s a voluntary decision made by the company’s directors and approved by its shareholders to wind up the company’s affairs in an orderly manner.

If you’re considering closing your company via a Members’ Voluntary Liquidation (MVL) in the near future, it might be in your interest to expedite those plans. Rumours are circulating that the government plans to change Capital Gains Tax rates and/or Business Asset Disposal Relief in the upcoming Autumn Budget on 30 October. If it does, you could receive less of the benefit from your hard work.

A Members’ Voluntary Liquidation is a procedure company directors can use to close their solvent businesses. They may want to retire, start something new or wind down a company they no longer need. Whatever the reason, if you have significant value tied up in the business then a Members’ Voluntary Liquidation allows you to close it in the most tax-efficient way.

In an MVL, all the distributions paid to the shareholders are taxed as capital rather than income. Capital Gains Tax is currently 10% for basic-rate and 20% for higher-rate taxpayers. However, you may also be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief), which reduces CGT to 10% for higher-rate taxpayers.

With a supposed ‘£22bn black hole’ to fill in the UK public finances, the government are looking at ways to bolster tax revenues without Income Tax, National Insurance or VAT increases, which have already been ruled out. That leaves several other taxes, including Capital Gains, that could see an adjustment.

At this stage, nothing is certain. However, if Capital Gains Tax rises or Business Asset Disposal Relief is dampened down or removed in the next budget, it would affect business owners who want to sell or close their companies via a Members’ Voluntary Liquidation.

The uncertainty around Capital Gains Tax means that if you have plans to close a solvent business, you could benefit by putting it into liquidation now. Any changes to Capital Gains Tax and Business Asset Disposal Relief could trigger a spike in MVLs, but by that point, it may already be too late. 

Although new tax rules are often not implemented until the start of the following tax year in April, there is a recent precedent for changes becoming effective immediately upon announcement. In that case, waiting for the Budget before starting your MVL could lead to an increase in your tax bill.

If you no longer have a use for a solvent business and it has cash reserves or physical assets worth over £25,000, entering into a Members’ Voluntary Liquidation is likely to be the most tax-efficient way to close it down. Starting the process before the Autumn Budget will:

• Allow you to benefit from the current rates of Capital Gains Tax and Business Asset Disposal Relief;
• Help you beat a potential rush after any announcement that could lead to long delays and prevent you from liquidating before the changes come in; 
• Enable you to receive your funds quickly so you can move on to something new.

If you have any questions about the upcoming changes or would like to know more about the Members’ Voluntary Liquidation process, please call 0800 056 2189 for confidential advice or get in touch to arrange a free consultation.