What is the tax situation with members voluntary liquidations?
Members Voluntary Liquidation (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 £10 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. To qualify for Entrepreneurs Relief it is worth noting that there is a three year time limit from ceasing to trade to the company funds being paid out.
Key tax advice
Don’t 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 you may lose the Entrepreneurs Relief. The tax man 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 (link to section 110 article) 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 limited companies because the corporation tax rate is lower at just 20% than profits taxed on an individual at up to 45%.
Members Voluntary Liquidation (MVL) is an efficient way for solvent companies to turn reserves into capital gain and pay just 10% tax
A Word of Advice An MVL is a really effective way of reducing your tax bill on retirement, but we don’t 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. Contact us today for a free consultation and to find out more about the tax benefits of a Members Voluntary Liquidation. We can help. Tweet