What are the tax implications of an MVL?

A Members’ Voluntary Liquidation (MVL) is a tax-efficient method for winding up a solvent company with considerable assets to share among shareholders. The money you receive is taxed as capital rather than income. Depending on your situation, you might also qualify for Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief).

The Tax Implications for Directors in a Members’ Voluntary Liquidation

Solvent businesses can opt for a Members’ Voluntary Liquidation (MVL) to efficiently conclude their affairs and allocate assets to shareholders.

Members’ Voluntary Liquidation Tax Advantages

  • In a Members’ Voluntary Liquidation, the funds obtained from the company are considered as capital distributions, not income. Consequently, these funds are taxed at a reduced rate compared to dividends taken outside the MVL process.

  • As the funds are liable to Capital Gains Tax rather than Income Tax, shareholders might also qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), further decreasing the tax burden on the funds.

Business Asset Disposal Relief and Reduced Capital Gains Tax

If you’re eligible for Business Asset Disposal Relief (also known as Entrepreneurs’ Relief), it could slash your Capital Gains Tax from 20% to 10% on gains up to £1 million over your lifetime.

This relief applies to individuals selling shares in a trading or holding company or group where they hold 5% or more of the voting rights for at least two years. If you’re not eligible for Business Asset Disposal Relief, an MVL could still offer tax advantages, depending on your tax bracket.

For any queries about the MVL process or closing your limited company, whether solvent or insolvent, Vanguard Insolvency is here to assist. Contact our experts for a free consultation at any of our 100 offices or a location convenient for you. 

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.