Last updated: 05 Nov 2024 10:30 Posted in:
The Autumn Budget, delivered by the UK’s first female Chancellor, Rachel Reeves, on 30 October 2024, involved hiking different forms of business tax to raise £40 billion in funds to restore broken public finances and rebuild Britain.
Labour’s first Budget in 14 years included an increase to Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR) rates.
CGT and BADR directly determine the tax implications of a Members’ Voluntary Liquidation, so these changes will have a very real material impact on company directors planning to close a solvent company via a Members’ Voluntary Liquidation.
Chris Bristow, a Members’ Voluntary Liquidation expert at Real Business Rescue explains what the Autumn Budget means for Members’ Voluntary Liquidation tax.
What did the Autumn Budget have in store for MVLs?
The Autumn Budget consisted of a series of tax hikes, including key changes to Capital Gains Tax and Business Asset Disposal Relief, such as:
Capital Gains Tax – The lower rate of Capital Gains Tax increased from 10% to 18%, and the higher rate increased from 20% to 24% for gains on qualifying assets from 30 October 2024 onwards.
Business Asset Disposal Relief – BADR, formerly Entrepreneurs’ Relief, which further reduces Capital Gains Tax liability will remain at the current rate (10%) this financial year. From 6 April 2025, the rate will increase to 14%, and again in April 2026 to 18%.
What does this mean for company directors planning a solvent liquidation?
Company directors considering closing a solvent limited company must recalculate their estimated tax liability as the tax rules have changed following the Autumn Budget.
Closing a solvent company through an MVL is a highly tax-efficient exit route for company directors with substantial cash in the business as they can benefit from favourable tax treatment.
The Chancellor explained during the Autumn Budget announcement that while Capital Gains Tax will be raised, a significant gap between CGT and Income Tax will be maintained. This preserves the tax advantages of an MVL and continues to encourage entrepreneurs to invest in their businesses.
Timing a Members’ Voluntary Liquidation
Although the Capital Gains Tax increase is in force, Business Asset Disposal Relief is yet to increase until 6 April 2025, which gives time to company directors considering liquidating a solvent business sooner, rather than later, to accelerate their plans and take advantage of BADR at the current rate.
While MVLs remain highly desirable, the increase in CGT and BADR rates could generate a substantially higher tax bill for those with higher retained profits.
"Although the Capital Gains Tax increase is in force, Business Asset Disposal Relief is yet to increase until 6 April 2025, which gives time to company directors considering liquidating a solvent business sooner, rather than later, to accelerate their plans and take advantage of BADR at the current rate."
Chris Bristow, Members' Voluntary Liquidation Expert, Real Business Rescue