In our previous article back in January we talked about the changes to Capital Gains Tax (CGT) that various commentators felt were coming as part of Chancellor Rishi Sunak’s March Budget.
Fears over potential reduction in reliefs and increases in the CGT rates prompted many clients and their advisers to accelerate plans for a business sale or exit, followed by a solvent Members’ Voluntary Liquidation (MVL) in order to maximise the tax benefits.
Our MVL team was busier than ever in the run-up to Budget day, working with many accountants, to ensure that their clients were able to get companies into MVL and, most crucially, complete distributions of cash and other assets ahead of a potential tax watershed on 3rd March.
In the three months from 1st December 2020 to 2nd March 2021 we took on over 200 MVL cases. By comparison, this was more than double the number we saw in the same three month period in 2019/20 – even though that period was also busy due to fears over a potential withdrawal of Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).
The majority of these 2021 cases completed their distributions ahead of the Budget – paying out in excess of £100 million in cash, as well as significant sums in respect of non-cash assets. Our MVL and cashiering teams were rather busy during Budget week and deserve great credit!
As it happened, the Budget actually turned out to be rather a damp squib in terms of CGT, which was effectively left alone. However, what it means is that having paused to get our breath back, the MVL team are once again open for business and are still dealing with lots of MVLs.
We work with many business owners who want to close a company via a solvent liquidation because, under tax legislation, distributions of cash and other assets made by a Liquidator in an MVL are generally treated as capital rather than income and therefore benefit from lower tax rates.
While commentators predict that CGT may still be in Rishi Sunak’s sights for the not-too-distant future, MVLs remain a tax efficient way of extracting value.
Who could benefit from an MVL?
In the SME arena, we tend to work with accountants and their business owner clients who are retiring or have sold the business through the limited company. It’s also an effective way to wind up businesses set up for a specific project that has been completed, when the profits and accumulated reserves must be extracted from the company by its shareholders.
MVLs also continue to be a popular route for those accountants whose freelance contractor clients need to wind up their personal service companies ahead of IR35 being rolled out to the private sector this April.
Adding value and expertise
Whilst many MVLs can be quite straightforward, there can be a number of complicating factors. This is why it is important to take specialist advice before beginning the process. Our specialist MVL team works in partnership with accountants to ensure that the best possible solution is secured for their clients.
If any of your clients are considering retirement, sale, or exit and want to use a solvent liquidation as a tax-efficient way of extracting that value then this remains a window of opportunity – but for how long… nobody knows.
Steve Markey
steve.markey@leonardcurtis.co.uk