Is The MVL Process Still An Efficient Way Of Disposing Of Business Assets?

With the news of alterations to both Capital Gains Tax and Business Asset Disposal Relief rates in the Autumn Budget, the Members Voluntary Liquidation (MVL) process as we know it has changed. Historically, an MVL has been deemed a highly tax-efficient way to extract the value of assets when closing a solvent business. However, Autumn Budget measures will alter the level of tax charged when disposing of business assets through this process from 2025 onwards. This is leading many business owners to question whether an MVL is still a good way of disposing of business assets and make some careful considerations about the timing of their actions moving forward. 

Autumn Budget Tax Changes At A Glance

While widely rumoured ahead of the Chancellor’s official announcement, the changes to Capital Gains Tax outlined in the Autumn Budget represent a seismic shift in the tax landscape, particularly for business owners. The key things to be aware of are:

Immediate Increase in Capital Gains Tax Rates:

• • Standard Capital Gains Tax rates have increased from 10% to 18% for basic-rate taxpayers and from 20 to 24% for higher-rate tax payers.
  • These increases do not apply to residential property assets, which remain at 18% and 24% respectively.

Future Changes to Business Asset Disposal Relief:

• • For asset disposals made up to the 6th April 2025, Capital Gains Tax on qualifying assets will remain at the current reduced rate of 10%.
  • From the 6th April 2025 onwards, Capital Gains Tax on qualifying assets will increase to 14%.
  • For disposals made after the 6th April 2026, the rate will rise further to 18%. 

What Does This Mean For MVLs?

The news of tax rate increases can immediately send alarm bells ringing, so it’s important to understand what these changes mean specifically for MVL tax rates and Capital Gains Tax on the disposal of business assets via this process.

The important thing to know is that, in most cases, assets disposed of through Members Voluntary Liquidation benefit from Business Asset Disposal Relief. This means that the process is viewed as a highly tax-efficient one, as it reduces the rate of Capital Gains Tax charged on your hard-earned wealth to 10%. 

However, these recent changes do alter the equation quite significantly. Under the new rules, the financial edge of an MVL may diminish slowly over time. While disposals made before April 2025 will still benefit from lower tax liability at the reduced 10% Capital Gains Tax rate, the rate will increase to match the standard Capital Gains Tax rate of 18% by April 2026.

Is An MVL Right For Your Business?

Despite there being significant changes to MVL tax rates in the pipeline, the process will still be favourable to business owners in many circumstances. If you are not sure if an MVL is still your best way of disposing of business assets, there are three key considerations to make in light of the Autumn Budget changes.

• Timing

If you are considering an MVL, acting sooner rather than later may be the way to go as you could lock in the 10% Capital Gains Tax rate for Business Asset Disposal Relief Qualifying Assets prior to April 2025, or the 14% rate from the 6th April 2025 onwards. 

Post 2025, the tax advantage of the MVL process narrows but should still remain a consideration for retiring business owners or those closing a solvent business that has reached the end of its useful life. When compared to income tax rates on dividend withdrawals, the higher rate of Business Asset Disposal Relief may still be the most favourable.

• Alternatives

Before making any decision related to asset disposal, you should take the time to evaluate all of your options. Changes to tax rates stress the importance of this process of evaluation even further, as the post-2025 Business Asset Disposal Relief rates may mean that other tax-efficient strategies might offer better outcomes. For example, in certain circumstances, it may be more suitable to distribute company assets over time to take advantage of annual Capital Gains Tax allowances. 

• Professional Advice

The most suitable method of disposing of business assets will always vary depending on individual business circumstances and goals, so it’s critical that you seek specialist advice related to your own requirements. 

With more complex considerations surrounding the MVL process, tailored advice from a licensed insolvency practitioner is essential. A qualified professional can help you determine whether an MVL remains optimal in your case, or whether there is a more suitable way of achieving your goals. 

Your Next Steps

The discourse surrounding the Members Voluntary Liquidation process is undeniably changing as changes to relevant tax rates bed in. However, an MVL can remain a highly valuable tool for business owners disposing of business assets – particularly those planning their exit in the near future. By acting swiftly, you could secure a lower Capital Gains Tax rate via Business Asset Disposal Relief and maximise your financial return when closing your business.

At My Liquidation, our expert and licensed insolvency practitioners are on hand to help you understand whether an MVL is right for your business and, if applicable, work with you to move through the process swiftly and efficiently. Get in touch with us today to find out more.