Insolvency statistics for Q3 2023 released this week show that overall, company failures are 10% higher than in the same period in 2022. The construction industry…
Whoever is running the country after the next election will be looking hard at ways to increase the tax take. One area of vulnerability is the differential between tax rates on income and capital gains – capital gains are taxed more favourably. Business Recovery director, Nick Harris, looks at the current advantage of MVLs and why it’s important to plan ahead.
What is a members’ voluntary liquidation (MVL)?
An MVL returns to shareholders the surplus assets in a company which has ceased its activity.
The present advantage of an MVL
Distributions from an MVL are treated as capital receipts in the hands of shareholders so they are taxed at 20% rather than at the shareholders’ income tax rate of 40-45% for higher and additional rate taxpayers – a saving of up to 25% on any gain.
If the shareholder qualifies for business asset disposal relief on the distribution, the tax rate falls to just 10%, subject to a £1m lifetime allowance. So, a potential tax saving of up to 35%.
These material advantages may catch the eye of the Chancellor in the forthcoming new Government. In particular, a new Government might wish to target anyone who has retained profits in a company (so avoiding income tax) with a view to ultimately only paying a lower capital gains tax (CGT) rate. There are already some specific anti-avoidance rules targeting some types of MVLs and a new government could decide to go further.
If you have value tied up in a limited company it may be sensible to consider whether it is worth extracting that value whilst the present tax rates apply.
This may require some planning: if the company is still active it will need to cease. If there is value to be obtained from a sale of the company’s business this may take some time. Therefore the decision needs to be made so as to allow enough time to get the best result.
The issue here is uncertainty. The world is an uncertain place and a change of government adds further uncertainty – especially where tax is concerned. Changes may not be immediate, but the clock is ticking.
How can we help?
We can help with all the necessary steps:
- Looking at the best way to maximise the value of the company, including the optimal way to achieve a sale
- Advising on the tax consequences for the company and its shareholders, including navigating HMRC’s anti avoidance provisions;
- Preparing the balance sheet for the liquidation process and assessing any associated risks; and
- Dealing with the paperwork to effect the liquidation and acting as liquidators.
Time will pass rapidly so if you would like more information on MVLs or have a company that may be suitable, please get in touch.