Spring Budget 2021 – Has There Been Any Change To MVLs?

Business man walking away while holding his briefcase in one hand and his jacket flung over his shoulder in the other

We have recently reported the speculation amongst the insolvency industry, as well as the accounting and tax profession, that the government may have been looking to make some changes to Capital Gains Tax provisions as part of the Spring budget 2021. This could have had a detrimental impact on a key benefit of the member’s voluntary liquidation (MVL) process.

As stated by the Chancellor in his Spring budget on 3 March 2021, the UK currently has the largest deficit it has had since the Second World War. This is hardly surprising given the vast financial support packages offered to businesses and individuals who have been affected by the COVID 19 restrictions.

Whilst there is some way to go until life goes back to normal, the government has had to start planning its strategy to reduce the deficit in the coming years but also being mindful of the need to still support businesses that are struggling and will continue to struggle as the restrictions ease. These support measures, to date, have resulted in a large decrease in company insolvency statistics.

Increasing Capital Gains Tax rates and/or scrapping Business Asset Disposal Relief (previously known as entrepreneurs relief) was one way of recouping funds for the Crown without affecting the vast majority of businesses.

How is Business Asset Disposal Relief Applied In An MVL?

For many years a huge advantage of a members voluntary liquidation has been that the shareholders of the company, providing they meet the relevant criteria, could claim entrepreneurs relief (since renamed to Business Asset Disposal Relief) on all funds or assets distributed to them by an insolvency practitioner (the Liquidator).

This means that the shareholders will be taxed at 10%, which is vastly more tax-efficient than extracting funds at income tax rates. For more information on Business Asset Disposal Relief/ entrepreneurs relief and how it applies in an MVL scenario, please read our previous article Claiming Entrepreneurs Relief in a Members Voluntary Liquidation.

Perhaps in fear of missing out on the opportunity at being taxed at only 10%, many company owners opted to close their company earlier than they had originally anticipated reducing the risk of Business Asset Disposal Relief being adversely amended or even scrapped within the Chancellor’s Spring budget on 3 March 2021.

What Was Announced In The Spring Budget 2021?

The simple answer is … nothing. There was absolutely no mention at all in the Spring budget of changes to Capital Gains Tax or Business Asset Disposal Relief, which will come as a massive relief to those company owners who did not quite manage to get their company into MVL pre-budget.

Will the relief ever be scrapped? That is the million-dollar question. It seems logical that it will be scrapped one day, maybe in 2022 when the economy is recovering, or even the year after. What it means for now, however, is that our team at My Liquidation can continue to assist many business owners considering an MVL process to extract their hard-earned funds at 10% tax.

If you would like to discuss the application of Business Asset Disposal Relief/Entrepreneurs Relief in an MVL in greater detail please contact us for some simple, fast and reliable advice.

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