Maximising Opportunities with Members’ Voluntary Liquidations (MVLs)

With potential changes to Capital Gains Tax (CGT) on the horizon, any company directors thinking about winding down their solvent business, and considering a Member’s Voluntary Liquidation (MVL), may want to act swiftly. The upcoming Autumn Budget, scheduled for 30 October 2024, is expected to introduce significant tax changes that could reduce the benefits of an MVL as an exit strategy.

Is an MVL the right choice for me?

An MVL is a formal procedure for winding down solvent end-of-life businesses. For those directors nearing the end of their business journey, an MVL offers a tax efficient way to realise and distribute cash and assets that provides substantial tax advantages.

Although MVLs are an attractive option for solvent companies, changes anticipated in the Autumn Budget may affect the current tax advantages. Therefore, directors and shareholders that are considering an MVL should act promptly to take full advantage of current tax conditions.

Key benefits of a Members’ Voluntary Liquidation:

• Formal mechanism to wind-up a solvent business
  To qualify for an MVL, a company must be solvent, meaning it can pay off its liabilities within 12 months, and its assets exceed its liabilities. This ensures that the process is suitable for companies in a strong financial position.
• Cash and asset distribution
  An MVL can quickly release cash and assets to shareholders, providing a swift exit for those looking to close their business.
• Tax Advantages
  The MVL route is tax-efficient, with distributions treated as capital rather than income, potentially attracting lower Capital Gains Tax (CGT) rates. Additionally, Business Asset Disposal Relief (BADR) may be available, reducing CGT to 10% at current rates.
• Professional Oversight
  An MVL is overseen by a licensed insolvency practitioner, ensuring that the process is compliant with legal requirements. This professional management provides peace of mind to directors and shareholders.
• Flexibility
  Directors may consider an MVL for various strategic reasons, including approaching retirement, health concerns, a desire to pursue a new venture, realising investment value, market or industry changes, or as part of a broader restructuring strategy.
• Enhanced Credibility
  Completing an MVL can enhance the credibility of directors and the company, as it demonstrates a responsible and structured approach to winding down the business. This can be beneficial for future business ventures or professional relationships.
• Cost-Effective Solution
  While there are costs associated with an MVL, the potential tax savings and efficient distribution of assets can make it a cost-effective solution compared to other exit strategies.

Anticipated changes to CGT and BADR

The Government is expected to implement a series of significant tax reforms at the upcoming budget, with Capital Gains Tax and Business Asset Disposal Relief being the expected focus.

Likely changes include:

• Higher CGT rates: The current rates of 10% and 20% could increase, bringing CGT closer to Income Tax levels.
• Possible end of BADR: Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, allows individuals to pay a reduced Capital Gains Tax rate of 10% on qualifying business disposals, up to a lifetime limit. This relief could be scrapped, eliminating a major tax advantage currently accessible under an MVL.

With such major changes looming, if you are considering winding up a business, now is the time to seek advice and find out if an MVL is suitable while current tax advantages are still available.

Supporting our clients through the MVL process

At RMT, we provide comprehensive support to directors and shareholders throughout the Members’ Voluntary Liquidation (MVL) process.

Our team of experienced professionals ensure that every step is managed efficiently and in compliance with legal requirements. From the initial consultation we undertake to understand your specific needs and objectives, to the final distribution of assets, we offer tailored advice and practical solutions. Our goal is to make the MVL process as smooth and stress-free as possible, allowing you tax efficiently close your business so you can focus on your future plans.

If you think you need advice on an MVL or any other help for your business, please do not hesitate to get in touch with Chris Ferguson here, or call 0191 256 9500.