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Members' Voluntary Liquidation Tax: A Director's Guide
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What are the tax implications of an MVL?
A Members’ Voluntary Liquidation (MVL) is a tax-efficient way of closing down a solvent company which has a significant level of profits and assets to distribute to shareholders. Distributions via an MVL are taxed as capital gains rather than income, and you may also be entitled to benefit from Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) depending on your circumstances.
The Tax Implications for Directors in a Members' Voluntary Liquidation
Solvent companies can use a Members’ Voluntary Liquidation (MVL) to efficiently wind up the affairs of the business and distribute the company's assets to shareholders in a tax-efficient and cost-effective manner.
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Members' Voluntary Liquidation Tax Advantages
- During a Members' Voluntary Liquidation, the profits extracted from the company will be treated as capital gains rather than income. This means these funds will be taxed at a lower rate than they would be if they were extracted in the form of dividends outside of an MVL procedure.
- Since the funds would be subject to Capital Gains Tax instead of Income Tax, shareholders may also be able to take advantage of Business Asset Disposal Relief (previously known as Entrepreneurs' Relief), which would halve the rate of Capital Gains Tax levied on the distributions
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Business Asset Disposal Relief and Reduced Capital Gains Tax
If Business Asset Disposal Relief (sometimes known as Entrepreneurs' Relief) is applicable to your situation, it would effectively reduce your Capital Gains Tax from 20% to 10% on any gains up to a lifetime limit of £1 million worth of gains. Following the Autumn Budget on 30 October 2024, Capital Gains Tax increased to 24% for higher rate taxpayers and 18% for basic rate taxpayers.
This relief is available to individuals who are disposing of the shares of a trading or holding company or group in which they hold 5% or more of the voting rights and have done so for a minimum of two years.
Even if Business Asset Disposal Relief is not available, an MVL may still provide tax benefits depending on what tax band the individual is in.
If you have any questions about the MVL process or any matter related to closing your limited company, whether it is solvent or insolvent, Real Business Rescue can help. Call our experts to arrange a free consultation at any one of our 100 Offices or a place of your convenience.
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Whether your company is solvent or insolvent, there are a number of ways to bring your business to a close. Speak to a member of the Real Business Rescue team today to understand your options.
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Still unsure whether liquidation is right for your company? Don't worry, the experts at Real Business Rescue are here to help. Our licensed insolvency practitioners will take the time to understand the problems your company is facing before recommending the best course of action going forward based on your own unique circumstances.
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