How will the Autumn Budget affect solvent liquidations?
If you are the director of a solvent limited company with valuable net assets, a Members’ Voluntary Liquidation (MVL) is likely the most tax-efficient way to close it. In this formal procedure, you pay Capital Gains Tax (CGT) on all the funds you extract from the company. You may also be eligible for Business Asset Disposal Relief (BADR), which reduces CGT to just 10%.
However, recent changes to Capital Gains Tax and Business Asset Disposal Relief in the Autumn Budget will impact the tax due on solvent liquidations. Here we discuss what the changes are and the effect on MVLs.
What changes were made in the Autumn Budget?
What changes were made in the Autumn Budget?
In her Autumn Budget on 30 October 2024, Rachel Reeves, Chancellor of the Exchequer, announced a raft of tax changes, including:
- An increase in Capital Gains Tax – With immediate effect, rates of Capital Gains tax have increased from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. The CGT annual exemption allowance of £3,000 will remain in place.
- Changes to Business Asset Disposal Relief (BADR) – Business Asset Disposal Relief is a tax relief scheme that reduces the CGT payable on qualifying assets. For the rest of the financial year, BADR will continue to reduce CGT to 10%. That will rise to 14% in April 2025 and 18% in April 2026.
These changes will reduce the gap between how capital and income are taxed and help Labour plug the black hole in public finances. But despite the increases, there is still enough difference between Income Tax and CGT, particularly at the higher rate, to encourage entrepreneurs to invest in their businesses.
What do the changes mean for directors considering solvent liquidation?
If you want to retire or no longer need your limited company, you could receive the maximum benefit by liquidating it now. Although Capital Gains Tax rates have already risen, you could still pay just 10% CGT on the distributions due to the delay in the changes to Business Asset Disposal Relief – but you must act quickly.
The Members’ Voluntary Liquidation process typically takes three to six months. That gives you a valuable window to reduce your tax burden. Even if you do not meet the deadline, you’ll pay 14% CGT on distributions after April 2025, but 18% if you wait until April 2026. That provides an additional incentive to put your exit plans in place sooner rather than later.
What’s the best way to close a solvent company after the Autumn Budget?
What’s the best way to close a solvent company after the Autumn Budget?
That depends on how much profit there is to extract from the company. A Members’ Voluntary Liquidation is a formal process and you will have to pay a licensed Insolvency Practitioner to administer the procedure on your behalf. However, all the funds you extract from the company are treated as capital gains rather than income, and you may also be eligible for Business Asset Disposal Relief. That can make it very tax-efficient.
The other option is to dissolve or strike off the company. There are no professional fees as you can apply and manage the process yourself. However, only £25,000 of distributions are treated as capital. Anything over that amount will be taxed as income. That typically makes Members’ Voluntary Liquidation the most cost-effective closure method for companies with retained profits of over £25,000.
How we can help
How we can help
If you need advice about company closure methods or want to know more about the tax implications of a Members’ Voluntary Liquidation, please do not hesitate to contact our team. We can provide a free phone consultation or discuss your circumstances in person at one of our offices throughout Scotland.
