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Members' Voluntary Liquidation: Tax Considerations

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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 with over £25,000 worth of assets to distribute. Proceeds are taxed as capital distributions rather than income, and you may also be entitled to Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).

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The Tax Implications for Directors in a Members' Voluntary Liquidation

Companies in good financial standing can use a Members’ Voluntary Liquidation (MVL) to efficiently wind up the affairs of a company and realise its assets into a cash amount that can be divided up amongst shareholders.

MVL Tax Advantages

  • During an MVL, any proceeds extracted from the company will be treated as capital distributions rather than income. This means these funds will be taxed much lighter 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 additional capital reliefs, such as Business Asset Disposal Relief (previously known as Entrepreneurs' Relief), which would reduce the taxes owed even further.

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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. 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. 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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