As the tax efficiency downgrades, Jon Munnery, a company liquidation adviser at UK Liquidators, looks at the declining appetite for members’ voluntary liquidations.

What are the changes to members’ voluntary liquidations (MVLs)?

The number of members’ voluntary liquidations (MVLs) typically ranges between 7,000 and 10,000 a year on average. There was a peak in popularity during the Covid-19 period, with the rate of MVLs gradually decreasing in recent years.

An MVL is a formal solvent liquidation procedure that also enables business owners to close a solvent limited company in a highly tax efficient manner. When closing a company through an MVL, distributions are treated as capital, rather than income, and therefore subject to Capital Gains Tax (CGT).

However, the tax rules around a MVLs notably changed following the Autumn Budget last year. As part of the major fiscal announcement, key changes were made to Business Asset Disposal Relief (BADR), directly influencing the tax appeal of an MVL.

BADR, previously Entrepreneurs’ Relief, provides access to a reduced rate of CGT, which means business owners can close a solvent company tax efficiently for those who qualify.

The recent changes included:

• Increasing CGT from 10% and 20%, to 18% and 24% respectively for disposals made on or after 30 October 2024.
• Increasing the rate of CGT that applies to BADR to 14% for disposals made on or after 6 April 2025. From 6 April 2026, this will increase to 18% for disposals made on or after 6 April 2026.

What is the future of members’ voluntary liquidations (MVLs)?

BADR sets CGT at a rate of:

• 10% on all gains on qualifying assets before 6 April 2025
• 14% on all gains on qualifying assets from 6 April 2025
• 18% on all gains on qualifying assets from 6 April 2026  

By the 2026/27 financial year, CGT rates under BADR will have increased by 8% overall, jumping from 10% to 18%. This means closing a solvent limited company through an MVL could be more tax efficient sooner, rather than later.

As company directors must pay a higher rate of CGT when closing a solvent limited company, they must factor this into their financial plans and be prepared to foot a higher tax bill. While the recent changes reduce the tax efficiency of an MVL in the immediate future, this route continues to be the cost-efficient way of closing a solvent company for most.

The rate increase may seem modest, but it can generate a substantially higher tax bill for company directors seeking to liquidate a solvent company. Company directors may consider fast tracking an MVL to benefit from a lower rate of CGT.

A members’ voluntary liquidation is limited to solvent companies and best suited to companies with £25,000 or more in retained profits for it to be cost effective. The demand for MVLs is also heavily influenced by economic conditions and the financial load this puts on companies.

During periods of economic uncertainty, business owners may consider cashing in their investment to prevent funds from eroding, as seen during the pandemic. Favourable economic conditions may also trigger MVLs as company directors look to realise maximum value.

About the author

Jon Munnery is a company liquidation adviser at UK Liquidators. He is a member of the Insolvency Practitioners Association MIPA and is The Association of Business Recovery Professionals MABRP. With a career in insolvency spanning many years, he regularly provides advice to company directors who are approaching insolvency, as well as those who already find themselves in an insolvent position.

See also

Who is liable to contribute to a company's insolvency?

Does an administration order stop limitation periods from running?

What the Autumn Budget means for members' voluntary liquidations (MVLs)

Images

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Publication date

15 July 2025

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.