For business owners and directors who’ve built a successful, solvent company and are looking to close it due to retirement, pursuing a new venture or any other valid reason there’s a strategic and highly tax-efficient route available. 

It’s a Members’ Voluntary Liquidation or MVL. 

Unlike any other liquidation process that can imply financial distress, an MVL is specifically designed for financially healthy companies that can pay all their debts, with interest if necessary, within 12 months.

If they can, directors and shareholders can avail themselves of several significant tax advantages. These include:-

  • Distributions treated as Capital Gains, not income

One of the most significant benefits of an MVL is how it treats the distribution of company profits and assets to shareholders. Instead of being taxed as income or dividends, which incur higher rates of tax, these distributions are treated as capital gains. 

This reclassification can lead to considerably lower tax liabilities for shareholders and is advantageous for companies with substantial retained profits. 

For example, if funds to distribute are less than £25,000, they might automatically be taxed as a capital gain upon strike-off. However, if the funds exceed £25,000 then an MVL becomes the best way to ensure the distributions are treated as capital receipts, overriding the £25,000 limit that would otherwise classify the whole amount as dividends.

  • Access to Business Asset Disposal Relief (BADR)

In another example of enhanced tax efficiency, eligible shareholders can often benefit from BADR, formerly known as Entrepreneurs’ Relief. This provides the eligible recipient with access to a reduced rate of Capital Gains Tax (CGT). 

Under BADR, the CGT rate can be as low as 14% on qualifying gains up to a lifetime limit of £1 million – a significant reduction from standard CGT rates. To qualify for BADR, specific conditions must be met such as holding at least 5% of the company’s shares with voting rights for a minimum of two years prior to liquidation. 

It’s important to note that the tax rules around MVLs and BADR have changed in recent years and could be set to change further in the forthcoming Autumn budget in November. In the previous budget, CHT rates under BADR increased from 10% to 14% on April 1st 2025 and are scheduled to rise again to 18% from April 1st 2026.

  • Potential for Corporation Tax early repayment discounts

Beyond personal tax savings, a well-planned and executed MVL can also offer benefits at company level such as Corporation Tax early repayment discounts. With effective planning, companies engaging in an MVL may be eligible for discounts on their Corporation Tax liabilities. In some cases, these early settlement discounts have exceeded the cost of liquidation, effectively resulting in a free MVL! This win-win situation is rare but can provide free money from both HMRC and lower fees.

  • Annual personal CGT allowance

Another additional advantage is that shareholders may be able to utilise their annual personal Capital Gains Tax allowance, making a portion of their gains tax-free. This further reduces the overall tax burden when extracting value from the company.

There are a couple of other important considerations to bear in mind:

  • Targeted Anti-Avoidance Rules (TAAR) 

While MVLs offer tax benefits, HMRC has a set of rules (TAAR) to challenge distributions where the main purpose of the liquidation is tax avoidance. For instance, if shareholders liquidate a company and then start a similar business within two years, HMRC might re-classify distributions as income rather than capital gains.

  • Professional Fees

Engaging in an MVL involves professional fees for the appointment of a licensed insolvency practitioner. However, in many cases, the tax savings achieved through the MVL process can significantly outweigh these costs.

MVLs offer a clear, structured and highly tax efficient process for directors to close a solvent company and realise the value built up over the years. By leveraging capital gains treatment, BADR and potential Corporation Tax discounts, directors can minimize their tax burden and  confidently move onto their next professional chapter.

We offer a free initial consultation to any shareholder or director who’s considering closing their profitable business and wants to take advantage of all the benefits it can bring – taxes and otherwise.