In April 2025, significant tax changes are set to alter the landscape for business owners seeking to liquidate their solvent company using Members Voluntary Liquidations (MVL). These changes will directly impact the tax benefits currently associated with using an MVL. Which makes it essential for you to understand the implications and act proactively.
This guide explains the MVL process, outlines the current tax advantages and delves into the upcoming changes. It’s here to help you decide whether an MVL liquidation is the best choice for your company.
What is a Members Voluntary Liquidation (MVL)?
An MVL is a process for solvent companies. It means directors can close their company smoothly and distribute its remaining assets to shareholders. Unlike liquidations prompted by insolvency, an MVL is initiated voluntarily by directors who can confirm the company’s ability to meet its financial obligations.
As part of the MVL process, all debts must be settled before any distributions to shareholders. The remaining assets can be distributed as capital rather than income, potentially providing tax benefits for shareholders.
The first step is to engage a professional who can assess your company’s suitability for an MVL and explain the process.
The current advantages of an MVL
One of the primary reasons directors choose an MVL liquidation is the tax efficiency it offers. These advantages include:
Capital Gains Tax (CGT)
Under current regulations, distributions to shareholders through an MVL can often be treated as capital rather than income. This allows shareholders to pay Capital Gains Tax, which is often significantly lower than Income Tax rates.
Business Asset Disposal Relief
Most directors qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which reduces the CGT rate to 10% on qualifying assets. This can result in substantial tax savings when compared to standard tax rates on dividend income.
Stress-free and compliant process
The MVL process is overseen by licensed insolvency practitioners, ensuring that the company’s closure adheres to legal requirements and eliminates the risk of future disputes with creditors or HMRC.
Upcoming MVL tax changes in April 2025
From April 2025, the tax landscape for MVLs is set to change, leading to a reduction in the financial benefits of solvent liquidation. So, what’s changing?
The biggest changes are coming for Business Asset Disposal Relief rates. For disposals made on or after 6 April 2025, gains eligible for Business Asset Disposal Relief will be taxed at 14% and, from 6 April 2026, gains eligible for Business Asset Disposal Relief will be taxed at 18%.
Contact our team of licensed insolvency practitioners today to discuss your options and determine whether an MVL is right for your business. Don’t miss the opportunity to take advantage of the current tax benefits before they change.
Is an MVL right for you?
In general, if your company has significant retained profits or assets (over £25,000), an MVL is the smarter choice for financial and legal reasons. To proceed with an MVL, you must legitimately be able to complete each of these steps:
1. Confirm that your company can pay its debts in full within 12 months of the start of the MVL process. This includes any future and contingent debts.
2. Be able to make a sworn statement confirming the company’s solvency. This statutory declaration of solvency must be made within five weeks of the passing of the winding up resolution.
3. Make a declaration that truthfully states that the directors have made a full enquiry into the company’s affairs and that they’ve formed the opinion that the company will be able to pay its debts in full within 12 months of the commencement of the winding up. (If made fraudulently, the directors may be liable to fines or prosecution.)
Failure to meet these requirements accurately or truthfully can result in legal consequences for all your company’s directors. If you’re positive that this is possible, the current tax advantages represent a significant opportunity to maximise the financial return from their company’s assets.
The MVL process
1. Consult a licensed insolvency practitioner: As well as being a legal requirement of an MVL, working with a licensed insolvency practitioner will help you seamlessly navigate the process and avoid potential pitfalls.
2. Prepare a declaration of solvency: All directors must confirm the company’s solvency and ability to pay all debts within 12 months. This declaration is a critical legal document and must be accurate.
3. Pass a resolution to agree to wind up the company: Shareholders must approve the liquidation through a formal resolution. This resolution must be filed with Companies House.
4. Appoint a liquidator: Your insolvency practitioner acts as the liquidator, managing the sale of assets, payment of creditors, and distribution of remaining funds to shareholders.
5. Distribute funds and close the company: After your creditors are fully paid, the liquidator distributes any remaining funds to shareholders as capital. Once the process is complete, we’ll file a final report with Companies House, and the company is officially dissolved.
Don’t delay your decision
With the April 2025 tax changes approaching, now is the time to consider whether an MVL liquidation aligns with your goals for closing your company. Acting sooner rather than later could help you maximise tax savings and secure a smoother transition.
