Members' Voluntary Liquidation, Capital Gains Tax And The 2024 Budget

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With the upcoming Budget on Wednesday, 30th October 2024, there is a possibility of changes to Business Asset Disposal Relief (BADR) and Capital Gains Tax (CGT) rates, which could affect business owners planning to sell or close their companies. One potential strategy is to expedite a Members' Voluntary Liquidation (MVL) for those considering it soon.

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With the Budget now set for Wednesday 30th October 2024, it is apparent that there may well be a change to Business Asset Disposal Relief and/or Capital Gains rates. This may affect business owners looking to sell or close their companies, and one strategy may be to bring forward a Members' Voluntary Liquidation (MVL) for those clients who maybe considering using this in the near future.

What is a Members' Voluntary Liquidation (MVL)?

A MVL is a process used to wind up a solvent company, typically when the directors and shareholders decide the business has reached the end of its useful life, or the owners wish to retire or pursue other interests.

MVL's are beneficial for shareholders as they allow for a structured and tax-efficient way of distributing the company's assets. For instance, shareholders might benefit from tax reliefs like Business Asset Disposal Relief (BADR), which can significantly reduce the amount of Capital Gains Tax payable.

Optimising Business Asset Disposal Relief During a Members' Voluntary Liquidation

When business owners decide to close their company through a MVL, maximising tax efficiency is often a priority. Business Asset Disposal Relief (BADR) provides a significant opportunity to reduce Capital Gains Tax (CGT) liabilities during this process, offering a lower tax rate of 10% on qualifying business disposals.

What is Business Asset Disposal Relief (BADR)?

BADR is a tax benefit available to business owners, allowing them to pay a reduced CGT rate when disposing of qualifying business assets up to a value of £1m. To benefit from this relief, it is essential to meet specific conditions:

Ownership Duration: You must have owned the shares or assets for at least two years before the liquidation date.
Trading Status: The company should be a trading company or the holding company of a trading group.
Significant Shareholding and Role: You need to hold at least 5% of the company's shares and voting rights and be an officer or employee of the company for a minimum of two years leading up to the liquidation.

Next Steps

If you are considering closing your business, given the complexities involved in qualifying for BADR and navigating the MVL process, it is essential to seek professional guidance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.