Significant tax changes coming in April 2025 are set to transform how business owners can benefit from Business Asset Disposal Relief, when using a Members Voluntary Liquidation (MVL) to close a solvent company. These changes will directly impact the tax advantages currently available through an MVL, making it crucial for you to understand the implications and consider taking action now.
Understanding Members Voluntary Liquidation
A Members Voluntary Liquidation, commonly known as an MVL, provides a structured path for solvent companies to close their operations and distribute remaining assets to shareholders. Unlike liquidations driven by financial difficulties, this type of liquidation is a voluntary process initiated by directors who can verify their company’s ability to meet all financial obligations.
The MVL process requires all company debts to be settled before any distributions can be made to shareholders. One of the key advantages of choosing this form of liquidation is that the remaining assets can be distributed as capital rather than income, potentially offering significant tax benefits through Business Asset Disposal Relief.
Speak to one of our licensed insolvency practitioners about whether you can take advantage of these MVL benefits.
Current tax benefits of an MVL
The tax efficiency of a Members Voluntary Liquidation makes it an attractive option for many company directors. Under the present regulations, an MVL offers several key advantages:
Capital Gains Tax treatment: When you choose an MVL liquidation, distributions to shareholders can typically be treated as capital rather than income. This classification allows shareholders to pay Capital Gains Tax, which often results in a lower tax burden compared to Income Tax rates on dividend payments.
Business Asset Disposal Relief advantages: Currently, most directors can access Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) through an MVL. This valuable benefit reduces the Capital Gains Tax rate to 10% on qualifying assets, offering substantial savings compared to standard dividend income tax rates. Business Asset Disposal Relief represents one of the most significant tax advantages available to company directors considering an MVL.
Business Asset Disposal Relief changes – April 2025
The tax landscape for MVL liquidations will undergo significant changes from April 2025, particularly affecting Business Asset Disposal Relief rates:
– From 6 April 2025: Gains eligible forBusiness Asset Disposal Relief will be taxed at 14%
– From 6 April 2026: The tax rate will increase further to 18%
These changes to Business Asset Disposal Relief represent a substantial reduction in the tax benefits available through an MVL liquidation.
Is an MVL liquidation right for your situation?
If your company holds retained profits or assets exceeding £25,000, a Members Voluntary Liquidation typically offers the most advantageous approach both financially and legally, especially if you qualify for Business Asset Disposal Relief. To proceed with an MVL, you must be able to meet these essential requirements:
1. Demonstrate your company’s ability to settle all debts within 12 months of starting the MVL process, including future and contingent liabilities
2. Provide a sworn statement confirming solvency within five weeks of passing the winding up resolution
3. Make an honest declaration stating that directors have thoroughly investigated the company’s affairs and are confident in its ability to pay all debts within the 12-month timeframe
The MVL liquidation process explained
To complete a successful Members Voluntary Liquidation and potentially benefit from Business Asset Disposal Relief, you’ll need to follow these steps:
1. Engage with a licensed insolvency practitioner to guide you through the MVL process and ensure compliance with all legal requirements.
2. Submit a formal declaration of solvency, signed by all directors, confirming the company’s ability to meet its financial obligations.
3. Obtain shareholder approval through a formal resolution to proceed with the winding up, which must be filed with Companies House.
4. Appoint your licensed insolvency practitioner who will act as Liquidator to manage asset sales, creditor payments and shareholder distributions.
5. Your licensed insolvency practitioner will complete the distribution of funds and company closure once all creditors are paid, followed by the submission of final reports to Companies House.
Why timing matters
With April 2025’s changes to Business Asset Disposal Relief approaching, it’s essential to evaluate whether an MVL liquidation aligns with your company closure plans. Taking action before these changes come into effect could help you maximise your tax savings through Business Asset Disposal Relief and ensure a smoother transition through the process.
The Members Voluntary Liquidation process offers a professional, compliant method for closing your solvent company. When managed by licensed insolvency practitioners, an MVL ensures your company’s closure meets all legal requirements and eliminates the risk of future complications with creditors or HMRC while potentially allowing you to benefit from current Business Asset Disposal Relief rates.
Don’t wait until the tax changes take effect to explore your options. Contact our licensed insolvency practitioners today to discuss whether an MVL is the right choice for your business and to understand how you can benefit from the current Business Asset Disposal Relief advantages before they change.
