How could the Capital Gains Tax review affect MVLs?

A recently published review by the Office for Tax Simplification (OTS) recommended several alterations to Capital Gains Tax, including a potential rise in the amount levied on businesses. These changes to Capital Gains Tax could affect certain benefits for directors looking to liquidate a solvent limited company via an MVL.

What is an MVL?

A Members Voluntary Liquidation (MVL) is the process of liquidating a solvent limited company. Directors can choose to do this if the company has reached the end of its useful life, or they plan to retire. One of an MVL’s main benefits to directors is its fast distribution of funds without the need for HMRC clearance (subject to shareholder indemnity).

Most notably, in this case, MVLs allow directors to apply for Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) and can be more tax-efficient than a dissolution, avoiding the imposition of income tax.

How could Capital Gains Tax affect MVLs?

The OTS’s report recommended several changes to Capital Gains Tax. These include reducing the exemption threshold for Capital Gains; currently set at £12.5k, to between £2k and £4k. Doing so would bring them more in line with other taxation.

This possible increase in the amount of tax you’ll have to pay after the changes could reduce an MVL’s potential benefits, particularly those concerning Business Asset Disposal Relief.

Can I still liquidate with the changes to Capital Gains?

The current tax year ends on April 5th, 2021, so if you’re still looking to liquidate your solvent limited company and claim Business Asset Disposal Relief, you’ll need to complete the process by this date. If you risk leaving it later, the proposed changes in legislation could impact what you receive.

If you are considering liquidating, there’s no time like the present. Contact us today if your solvent limited company has come to the end of its useful life, and we can help you decide the best route forward.

How can my company apply for an MVL?

If you’d like to liquidate your solvent limited company before the end of the tax year, speak to us today. Our standard MVL price is £1,995 + VAT and expenses, and our licensed insolvency practitioners can guide you through the process, potentially allowing you to claim Business Asset Disposal Relief and close the company in a tax-efficient, profitable way.

Summary

The Office for Tax Simplification’s report into Capital Gains Tax has suggested several changes. Some of these changes could reduce the benefits to you as a director if you’re looking to liquidate your solvent limited company via an MVL. MVLs can allow you to qualify for Business Asset Disposal Relief. The proposed reduction in the threshold for Capital Gains means businesses who liquidate after this tax year ends may see the benefits reduced.

Speak to us for free, regulated, impartial advice with no obligation. Whether you need help on Business Asset Disposal Relief, or you want to liquidate your solvent limited company, we can help you and your shareholders reach the best solution before the rules on Capital Gains Tax change.