What the Autumn Budget means for members' voluntary liquidations (MVLs)
Chris Bristow, a corporate insolvency adviser at Real Business Rescue, explains how members’ voluntary liquidations are changing in light of the 2024 Autumn Budget.
How does the Autumn Budget affect members’ voluntary liquidations?
The Chancellor of the Exchequer, Rachel Reeves, delivered the Autumn Budget on 30 October 2024, with her sights set on raising a record £40 billion in taxes. Emphasising her approach to raising taxes, rather than imposing spending cuts, Capital Gains Tax and Business Asset Disposal Relief, both key components to a members’ voluntary liquidation (MVL), were among the tax measures targeted in the Autumn Budget.
An MVL is a formal liquidation procedure for a solvent company, handled by a licensed insolvency practitioner. MVLs are popular with company directors as they provide a route through which they can extract profits tax-efficiently and bring the business to a close.
An MVL is favourable from a tax perspective as profit distributions are treated as capital, rather than income, and therefore subject to Capital Gains Tax which is at a lower rate than Income Tax. Further tax relief can be claimed through Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, if eligible.
The Chancellor increased both Capital Gains Tax rates and Business Asset Disposal Relief in the Autumn Budget.
Capital Gains Tax
The lower and higher main rates of Capital Gains Tax will increase to 18% from 10% and to 24% from 20%, respectively, for disposals made on or after 30 October 2024.
The Chancellor explained that a significant gap between Capital Gains Tax and Income Tax will be maintained to encourage entrepreneurs to continue to invest in their businesses. This means that although CGT rates have increased, an MVL remains a desirable exit tool for company directors looking to shut shop.
Business Asset Disposal Relief
The rate for Business Asset Disposal Relief will increase to 14% from 6 April 2025 and increase again to 18% from 6 April 2026. The new rates will be legislated in Finance Bill 2024- 25.
The full Autumn Budget breakdown can be found GOV.UK.
What’s the best route when liquidating a solvent company?
As a business owner considering closing a solvent limited company, the first step is to determine what route is best. If the company has over £25,000 in retained profits, a members’ voluntary liquidation could be more tax efficient than dissolving the company (strike off).
While Capital Gains Tax rates increased with immediate effect, BADR remains at 10% for the current 2024-25 tax year, set to increase on 6 April 2025.
While a members’ voluntary liquidation remains a highly tax-efficient exit route even after the BADR rate increases, company directors planning to liquidate a solvent company soon should consider accelerating their disposal to maximise tax savings.
About the author
Chris Bristow is a corporate insolvency and business restructuring adviser at Real Business Rescue, leading licensed insolvency practitioners providing support to distressed company directors across the UK.
See also
A guide to members' voluntary liquidation (MVL)
Economic Crime and Corporate Transparency Act 2023 - a year later
What is Business Asset Disposal Relief?
Find out more
Autumn Budget 2024 (GOV.UK)
Images
Getty Images
Publication date
5 November 2024
Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.