Uncertainty around potential Capital Gains Tax changes. Consider a solvent Members Voluntary Liquidation (MVL) before the autumn budget.

The new Government’s first autumn budget is due to arrive on 30th October 2024. Tax rises are expected, but with VAT, income tax, and National Insurance increases seemingly ruled out, some speculate increases to Capital Gains Tax may be on the way.

Previous budgets have brought changes to Capital Gains Tax, while others have caused widespread economic disruption alongside proposed changes to IR35.

If Capital Gains Tax were to rise, it may reduce the tax benefits offered by a solvent Members Voluntary Liquidation (MVL) in the period after the budget comes into force.

What is an MVL?

An MVL is a type of liquidation that company directors can enter if that company is solvent and has enough assets to settle its liabilities as and when they fall due.

It is often more advantageous and tax-efficient than simply dissolving the company.

Distributions could be taxed under Capital Gains Tax rather than income.

Additionally, you may qualify for one of an MVL’s more attractive benefits: that director may be eligible to claim Business Asset Disposal Relief (BADR). Companies with more than £25,000 of cash to release may be eligible for BADR, and the process reduces the amount of Capital Gains Tax that the company must legally pay on the sale of the company and/or its assets.

More on Business Asset Disposal Relief (BADR)

What do we know about the autumn budget?

While we don’t know for certain what measures this autumn budget will contain, the new Chancellor, Rachel Reeves, ruled out raising VAT, income tax, and National Insurance. Additionally, the Government hasn’t ruled out raising Capital Gains Tax after previously stating that taxes would have to increase to address the £22 billion shortfall in public finances.

How could this affect company directors?

While nothing is certain, if Capital Gains Taxes were to rise in the next budget, it might make an MVL less appealing. BADR, in particular, may lose some of its tax-efficient appeal after these speculated changes might come into force. Ultimately, this could result in directors paying more tax if they do liquidate.

Should I place my company into MVL before the budget?

The uncertainty surrounding the upcoming budget has led many company directors to consider a solvent Members Voluntary Liquidation (MVL) now, especially with the potential rise in Capital Gains Taxes. Acting before the budget could offer several advantages:

• Lock in at current tax rate
  The certainty of benefiting from BADR at the current tax rate rather than a potentially raised rate after the budget.
• Beat any potential rush
  A better chance of completing the process early, beating any potential rush on MVLs as company directors try to liquidate before those potential changes come into force.
• Receive funds earlier
  Potentially stand a better chance of receiving any distributed funds before any potential changes to the Capital Gains Tax threshold.

How to proceed with an MVL

To take advantage of an MVL’s benefits, speak to us. We can place your company into an MVL, set out what information we require and discuss timescales.

How to apply for a Members Voluntary Liquidation (MVL)

Our standard cost of an MVL starts at £1,995 + VAT & expenses. This standard fee applies to cases where the company’s only asset is cash at bank, and all liabilities have been settled. More complex cases may require a higher fee.

More on the costs of a Members Voluntary Liquidation (MVL)

Summary

The Chancellor hasn’t ruled out rises in Capital Gains Tax in the upcoming autumn budget. Any possible rise might impact the benefits company directors gain from solvent Members Voluntary Liquidations (MVLs), which are generally more tax efficient than dissolving a company and allow its directors to claim Business Asset Disposal Relief (BADR).

By speaking to us now, you can ensure that your company can take advantage of BADR at the current rate and beat any potential rush of directors trying to liquidate their companies before any potential changes come into force.