Current landscape

MVLs (Members Voluntary Liquidation) are a formal liquidation procedure for solvent companies, handled by a licensed Insolvency Practitioner. MVLs are popular with company directors and shareholders as they provide a route through which they can extract profits tax-efficiently as distributions are treated as capital, rather than income, and therefore subject to Capital Gains Tax (“CGT”) which is at a lower rate than Income Tax. In some cases, if eligible, the shareholder may also receive tax relief through Business Asset Disposal Relief (“BADR”), (formerly known as Entrepreneurs’ Relief), offering a reduced tax rate in place of CGT. 

The connection to profits being paid to shareholders brings personal tax considerations into this corporate insolvency matter and often the timing of an MVL is impacted by UK Government changes to a number of rates and thresholds. 

In this regard, the Budget delivered in October 2024 included amendments to CGT and BADR, both of which are key components to the shareholders in an MVL:

• Capital Gains Tax - The lower and higher main rates of CGT will increase to 18% from 10%, and to 24% from 20% respectively, for disposals made on or after 30 October 2024. This means that although CGT rates have increased, an MVL remains a desirable exit tool for company directors looking to shut up shop compared to withdrawing money out as income and striking off.
• Business Asset Disposal Relief - From 6 April 2025 the rate for BADR will increase to 14% from 10% and increase again to 18% from 6 April 2026. This means that those considering an MVL to benefit from BADR should act before April 2025 to secure the lower rate. 

MVL’s on the rise 

Despite a 24% drop in Scottish company insolvencies in December compared to the same month in 2023, Members’ Voluntary Liquidations (MVLs) have surged. MVLs accounted for more than half of all company liquidations for December 2024 and have now reached their highest level since Q4 of the 2020-21 financial year. This trend indicates that directors of solvent businesses may be opting to close their companies in advance of the upcoming changes to rates in April 2025 such as BADR, alongside increases to Employers’ National Insurance and the National Minimum Wage, which are expected to create financial challenges for many firms. 

So, with all this in mind, the question is: what’s the best route when liquidating a solvent company? 

As a business owner considering closing a solvent limited company, the first step is to determine what route is best. If the company has over £25,000 in retained profits, a members’ voluntary liquidation could be more cost efficient than dissolving the company (strike off). 

This is because distributions made to shareholders outside of an MVL will be treated as income, and dividend tax will therefore apply at the following rates: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. So, for example, an additional rate taxpaying shareholder receiving £100,000 on the liquidation of their company would pay around £39,350 if taxed as a dividend but would face capital gains tax of just £10,000 if BADR is available, saving nearly £30,000 in tax.

While CGT rates increased with immediate effect, BADR remains at 10% for the current 2024-25 tax year, and set to increase on 6 April 2025. Therefore, it may be beneficial to commence any planned MVL sooner rather than later. Looking beyond April, an MVL remains a tax-efficient exit route even after the BADR rate increases therefore it is important that businesses consider all their options.

When is an MVL appropriate?

An MVL is a good option for a solvent company which has naturally reached the end of its life or purpose. Circumstances where an MVL may be appropriate, include:

• The closure of a long-established business.
• Following a business and asset sale with proceeds to be distributed to shareholders.
• As part of the retirement planning of shareholders.
• As part of the simplification of a group of companies that includes dormant or uneconomic subsidiaries. 
• Company reconstruction via Section 110 of the Insolvency Act 1986 whereby company can transfer assets to other companies in exchange for shares.

What are the advantages?

An MVL can be an efficient way to wind up a company or group of companies and extract value. When managed properly it can offer significant benefits, including access to the value held in the business, reduced tax liabilities, lower professional fees and a more transparent process. 

Voluntary strike off vs MVL

Act now

With CGT rates already increased and BADR changes coming in April 2025, now is the time for business owners to assess their options. Seeking professional advice early can ensure the most tax-efficient outcome.