Cashing In On a Solvent Business – The Changing Landscape of MVLs

If you’re a company director looking to wind down a solvent limited company using a Member’s Voluntary Liquidation (MVL), it’s time to get a move on. The Chancellor of the Exchequer, Rachel Reeves, is gearing up for a Labour government’s first Autumn Budget on 30 October 2024, and it’s likely to shake up the tax perks that make an MVL so appealing.

Is an MVL the Perfect Exit for Solvent Companies?

A Members’ Voluntary Liquidation (MVL) is a formal procedure to liquidate solvent companies, typically those with healthy profits and substantial assets. If your business is nearing the end of its life and has plenty of cash or assets, now’s the time to speed things up if you want to make the most of the tax benefits.

At the moment, an MVL is the ideal way to exit a solvent business, but those advantages could soon be clipped by the upcoming Budget. Accountants should encourage their clients to act swiftly, or they might miss out on significant tax savings.

The Benefits of an MVL:

• Tailored for solvent companies – MVLs are exclusively for companies that are financially sound, meaning assets outweigh liabilities and debts can be settled within 12 months.
• In control – Since it’s a voluntary process, directors maintain control over the timing and the procedure itself.
• Fast and efficient cash release – An MVL is designed to release cash quickly, offering a swift way for directors to step away.
• Highly tax efficient – Money distributed through an MVL is treated as capital rather than income, which means it’s taxed under Capital Gains Tax (CGT) instead of Income Tax. Some directors might also qualify for Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, reducing their tax bill even further.
• Stress-free – The entire MVL process is handled by a licensed insolvency practitioner, making it straightforward for both accountants and their clients.

Act Now – Before CGT and BADR Changes Hit

Rachel Reeves has promised sweeping changes in her upcoming Autumn Budget, aiming to fill a fiscal gap while keeping borrowing in check. This could lead to significant tax reforms, including:

– Higher Capital Gains Tax (CGT) rates – The gap between CGT and Income Tax may narrow, with CGT rates likely to rise from their current levels of 10% (basic rate) and 20% (higher rate). Additionally, allowances like the Annual Exempt Amount (AEA) might shrink from its current £3,000.

– The end of Business Asset Disposal Relief (BADR) – BADR, which cuts CGT to 10% on qualifying business disposals up to £1 million, could be on the chopping block. Without it, one of the key tax advantages of an MVL would disappear.

With the future of BADR uncertain, the tax efficiency of MVLs is hanging in the balance. If your client is thinking about closing a solvent company through an MVL, now’s the time to seek expert advice and lock in those tax savings.

Why Might Clients Need a Members’ Voluntary Liquidation?

An MVL is the right move for many company directors when their business no longer fits their future plans. Reasons include:

• Approaching retirement
• Health changes
• Starting a new venture
• Relocation
• Unlocking investment value
• Stepping away from ownership
• Challenging market conditions
• Part of a broader restructuring

With possible changes to CGT and BADR looming, clients may want to cash in on their investment now to minimise their tax liability before the Autumn Budget arrives. Time to act is short!

If you think this may apply to you, please contact Andy, Fiona or Rob