What Tax Is Paid When Closing A Solvent Limited Company?
When a solvent limited company reaches the end of its purpose, wants to change direction, or owners decide to retire, a decision may be made to close it. In this scenario, financial performance can be healthy, but the method used can still have significant tax implications.
If you are in this position and considering closing a solvent limited company, either dissolution or a Members Voluntary Liquidation (MVL) will be utilised to do so. Tax liabilities vary significantly between these closure methods, and we have outlined this in this article so that you can ensure your exit is as tax-efficient as possible.
Dissolving A Solvent Limited Company
The first way of closing a solvent limited company is through dissolution, also known as company strike-off. This is generally seen as a quick and cheap option for solvent businesses with no debts and total assets valued under £25,000.
When a company is dissolved and assets are distributed before the closure, any remaining reserves are treated as dividends. This means that company shareholders will be taxed at dividend tax rates, which can be significantly higher than the equivalent tax rates applied to capital distributions.
Closing A Solvent Limited Company Via Members Voluntary Liquidation
If your solvent company holds more than £25,000 in assets, the method for a tax-efficient closure is an MVL. This is a formal liquidation process, carried out by a licensed insolvency practitioner who will oversee the orderly distribution of company assets to shareholders in a tax-efficient manner, before the company is then struck off the Companies House register and closed.
During the MVL process, asset distributions to shareholders are treated as capital gains rather than income for tax purposes. Capital Gains Tax rates can be as high as 32%, but it is important to note that you may be eligible for tax relief via Business Asset Disposal Relief (BADR).
As of April 2025, the Capital Gains Tax rate under BADR is 14% on qualifying gains, rising to 18% from April 2026. This represents a significant tax saving compared to income or dividend tax rates, highlighting why MVL is typically viewed as the most tax-efficient way of closing a solvent limited company.
Get Help Closing A Solvent Limited Company
If you’re planning on closing a solvent limited company, it pays to opt for the right method to do so. With this in mind, it’s important to seek expert advice before making any decisions to ensure that you can choose the best route forward.
At My Liquidation, our team of licensed insolvency practitioners can help you understand whether the Members Voluntary Liquidation process is suitable for your company, guiding you through to help you maximise the available tax reliefs. Whether you’re retiring or simply wrapping up a business that has fulfilled its purpose, our expert team can provide you with the advice you need. Simply get in touch today to discuss your position in more detail.
