The quick answer
A Members’ Voluntary Liquidation (or “MVL”) is an efficient way for solvent companies to turn reserves into capital gain and pay just 10% tax. Shareholders who own more than 5% of the ordinary share capital of a company can usually claim Entrepreneurs’ Relief.
This means you can pay capital gains tax at just 10% on the first £1 million you receive from the sale of your shares. It is worth checking this first though with your tax advisor or accountant before you start the MVL process.
In more detail
Key Tax Advice
Do not get caught by the tax settlements legislation. MVLs are designed to be used on selling up and retiring from that type of business. If you start the same business again within tow years you may lose the Entrepreneurs’ Relief.
Also note that in these cases HM Revenue and Customs may think the “Goodwill” of one business has been transferred from the old one to a new one and will tax you on it. Sometimes companies use a Section 110 Scheme of Arrangement to re-organise the ownership whilst saving tax. This is a type of MVL.
CAN I PUT MY SOLE TRADER BUSINESS, PARTNERSHIP OR LLP INTO A MEMBERS VOLUNTARY LIQUIDATION?
In short no, you cannot. It is only available for a limited company. A company is a separate legal entity for tax purposes. Quite often businesses trade through a limited company because the corporation tax rate is lower at just 19% than profits taxed on an individual at up to 45%.
A Word OF Advice
An MVL is a really effective way of reducing your tax bill on retirement, but we do not think it will last forever so if you are ready to proceed with an MVL, now is the time to do it before the law changes.