September 19, 2024

Considering closing a solvent company? Act now, before tax advantages are downgraded in Labour’s Autumn Statement

The Chancellor of the Exchequer, Rachel Reeves, is anticipated to deliver sweeping tax rises in Labour’s first Autumn Budget on 30th October 2024 with Capital Gains Tax to be a prime target in her attempt to plug the “fiscal back hole”. Directors considering winding down their companies solvently through a Members’ Voluntary Liquidation (MVL) must act swiftly to benefit from the current tax advantages which are expected to be downgraded following the Autumn budget.

What is an MVL and what are the current benefits?

Members’ Voluntary Liquidation is a formal liquidation process for solvent limited companies with substantial retained assets, including cash. Unlike the strike-off route, an MVL is a controlled procedure which deals with all creditor claims under statute. The process is managed by a licensed insolvency practitioner with limited involvement from directors.

An MVL is a highly tax efficient process as distributions are deemed as capital, rather than income, and are therefore subject to Capital Gains Tax (CGT) as opposed to income tax. Shareholders may also qualify for Business Asset Disposal Relief (BADR), formerly Entrepreneurs Relief, and benefit from further reductions in their tax liabilities.

Business Asset Disposal Relief (BADR) and Capital Gains Tax

At CBW Recovery, we anticipate that major tax reforms in the Autumn Budget could include:

  • End of BADR – This relief scheme applies to asset disposals when a solvent business is closed, reducing CGT to 10%, with a lifetime limit of £1million. If Labour scrap this relief, a key tax saving in MVL would be lost meaning that tax advantages of proceeding with an MVL may be eliminated.
  • Increases in Capital Gains Tax rates – There is an expectation that CGT rates (currently 10% – basic rate / 20% – higher rate) will be brought closer in line with Income Tax rates. In addition, certain reliefs like Annual Exempt Amount (AEA) per individual, could be further reduced from £3,000 per year.

It is recommended that accountants advise their clients to act now to avoid the risk of enhanced tax liabilities in the coming months.

Here at CBW Recovery LLP, we can act swiftly to place companies into MVL and release capital for shareholders. We have dedicated corporate insolvency specialists that can support clients with the entire liquidation process.

As CBW Recovery LLP do not provide tax advice, individuals would need to take their own advice and consult with their accountants/tax advisors. In particular, where individuals are seeking to continue trading through an alternative corporate vehicle after MVL, advice should be taken to consider tax avoidance rules including Targeted Anti-Avoidance Rule Considerations to deal with the tax advantages that can occur as a result of phoenixing (that is closing down a business and extracting funds as capital then setting up a similar business to continue trading).

For more information or to discuss how CBW Recovery can assist your clients close a solvent company, please contact Jon Reason (T: 020 4581 7151, E: jonathan.reason@cbwrecovery.co.uk) or Joseph Colley (T: 020 4581 7143, E: joseph.colley@cbwrecovery.co.uk).

 

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