Closing a solvent limited company after April’s MVL tax changes
Written by Dean Lomas from Begbies Traynor Group
How is MVL tax changing from April 2025?
A Members’ Voluntary Liquidation is a popular closure option for solvent limited companies as the tax treatment favours company directors. While an MVL continues to offer a tax-efficient exit route, the goalposts are changing from the new 2025/26 tax year.
In an MVL, profit distributions are treated as capital and therefore, subject to Capital Gains Tax. Following the Autumn Budget, Capital Gains Tax rates increased to 24 per cent from 20 per cent (higher rate taxpayers) and 18 per cent from 10 per cent (basic rate taxpayers).
An MVL offers further tax relief to eligible company directors through Business Asset Disposal Relief (BADR) – this is set to change from 6 April 2025. If a company director qualifies for BADR, they can access a reduced rate of Capital Gains Tax. This is currently 10 per cent and will increase to 14 per cent (from April 2025) and 18 per cent (From April 2026).
The Chancellor emphasised that a gap between Capital Gains Tax and Income Tax will be maintained to encourage investment and entrepreneurship.
What does this mean for company directors?
Limited company directors with plans to dispose of their solvent company may consider seeking a Members’ Voluntary Liquidation earlier, rather than later, to take advantage of a lower rate of Capital Gains Tax, should they qualify for BADR. While the percentage increase may appear nominal, this can equate to thousands of pounds worth of additional tax.
What’s the appeal of a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation is a popular exit route for company directors looking to close a solvent limited company due to the tax efficiency.
An MVL is a typically straightforward process initiated by a licensed insolvency practitioner. The Members’ Voluntary Liquidation timeline consists of concluding business affairs, notifying the relevant parties, issuing the required notices, distributing profits amongst shareholders and closing the business. The complexity of an MVL and the timeline will be determined by the structure of the business and the value of funds retained by the company.
The tax element is a strong incentive as profit distributions are treated as capital and therefore subject to capital gains tax, rather than income. The funds can be made available to shareholders quickly and profit distributions can be structured to generate the most tax efficient outcome.
Is there an alternative to a Members’ Voluntary Liquidation?
An MVL is often the most suitable exit route for companies with substantial funds to extract due to the associated tax treatment, the general rule of thumb is businesses with over £25,000 retained profits.
Company strike off is an alternative to a Members’ Voluntary Liquidation, however, this is strongly advised for companies with minimal to no retained profits. This option is not suitable for companies with retained profits over £25,000. While company strike off can be conducted for a small fee, the tax bill can be significant if companies with substantial profits pursue this route.
For more information on Members’ Voluntary Liquidation tax and timing an MVL, email Dean Lomas at dean.lomas@btguk.com, Business Development Manager at Begbies Traynor Group Birmingham.