When you decide to sell or close your company via a Members Voluntary Liquidation (MVL), you may be eligible for Business Asset Disposal Relief (Entrepreneurs’ Relief). This reduces the amount of Capital Gains Tax you will legally be required to pay on the sale of your company and/or its assets, from its standard rate to a reduced 10% rate.
As individual circumstances vary, the following information is provided for guidance, and we strongly recommend taking advice from a tax specialist, before making any decisions on Business Asset Disposal Relief (Entrepreneurs’ Relief) via an MVL.
Why would I apply for an MVL?
If you are a director or shareholder planning to sell or close your company, Business Asset Disposal Relief (Entrepreneurs’ Relief) via an MVL can save you money on your tax bill. You must be selling all or part of your investment in the company to be eligible for a 10% rate of capital gains tax.
This reduced 10% rate is lower than the traditional capital gains rate but be aware that there is a limit on the amount you can claim which is currently capped at £1m over your lifetime.
How much does an MVL cost?
Our MVLs have a standard fixed fee of £1,695 + VAT + expenses. However, this is only applicable if the company’s sole asset is cash in its bank account with all liabilities settled. For more complicated cases, there will be a higher fee.
How do I qualify for Entrepreneurs Relief?
As with any sort of tax break scheme of this nature, there are certain criteria you will need to fulfil to pay the reduced tax. These include:
- You must apply as an individual.
- You should be an employee, officer, or director of the company to which the claim relates.
- You will need to have owned your share in or held office at the company for at least two years before the business ceased trading.
- You will need to own at least 5% of the company and at least 5% of the voting rights.
- You should have at least 5% of the nominal issued share capital.
- You should not have exceeded the lifetime limit of £1 million per shareholder.
You can apply for Business Asset Disposal Relief (Entrepreneurs’ Relief) if you feel that you fulfil the above criteria. If your company has gone through an MVL, then on most occasions, you will qualify.
Business Asset Disposal Relief (Entrepreneurs’ Relief) will need to be claimed within 12 months after 31st January following the tax year in which the company was closed or sold.
An individual can claim for a number of businesses, and they will be included up to the £1m lifetime limit. You will not be entitled to Business Asset Disposal Relief (Entrepreneurs’ Relief) on any and all new businesses after this limit has been reached.
Spouses of claimants of Business Asset Disposal Relief (Entrepreneurs’ Relief) can also put forward their claim providing they own 5% of the company, and they have been an employee in some capacity.
Business Asset Disposal Relief (Entrepreneurs’ Relief) will allow you to make tax savings on the capital distributions when closing a company, which eventually go to the shareholders after the company’s closure. You will need to pay capital gains tax on the capital from the sale/closure of your business, but a successful claim for Business Asset Disposal Relief reduces the amount of tax you will owe. As a result, when you use the MVL procedure, you could make significant tax savings.
How we can help
If you are looking to close your solvent company in a tax-efficient way, whether now or in the future, then an MVL could be the right option. We can help you make full use of Entrepreneurs’ Relief and walk you through the procedure. Our insolvency practitioners are highly experienced in ensuring that you meet the correct obligations to qualify for the tax breaks involved.
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