LC Director and MVL expert Steve Markey looks ahead to the Autumn Statement, with comment from LC Legal Director Jonathan Roberts
Back in our January article when we asked the question – “is time running out for tax-efficient capital gains?”, we thought the answer was “yes – imminently” because many commentators felt that the Chancellor, Rishi Sunak, was going to be making changes to Capital Gains Tax (CGT) as a means of raising much-needed income to help balance the books after the huge financial cost of the pandemic.
The key theme from the Office of Tax Simplification report entitled “Simplifying by design” that was commissioned by the government was that significant sums could be generated through a combination of increasing CGT rates and reducing certain allowances.
However, fears over what changes were likely to be made to CGT as part of the March Budget proved to be unfounded.
Our Solvent Liquidations team was incredibly busy in the three months to 2nd March 2021 – completing more than double the number of Members’ Voluntary Liquidations (MVLs) than in the same period the previous year – because people rushed to extract value from companies on the assumption that the tax benefits were not going to be as attractive post-Budget.
As a reminder, 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 – especially where Business Asset Disposal Relief applies.
So what happened after the March Budget?
Interestingly, we have continued to see high levels of transactions since the Budget – this has been supported by our corporate colleagues at our in-house law firm – Leonard Curtis Legal – who have advised on a wide range of matters.
Director, Jonathan Roberts, commented “The Leonard Curtis Legal team has had a busy year, particularly in advising on corporate transactions driven, in part, by speculation on changes to Capital Gains Tax. In addition to the usual trade sales, management buy outs and private equity-backed M&A deals, we have seen an increasing number of Employee Ownership Trust transactions. These are tax efficient, and very attractive to owner managers looking to retire and can be a fantastic way to incentivise a loyal workforce. They are often far easier to implement than many clients expect – provided the right professional advisers are in place. The weeks leading up to the budget in March were especially busy and we anticipate a similar scramble to get deals completed before the Autumn Statement at the end of November.”
Additionally, we have seen MVL numbers remain high – partly due to business owners deciding to wind down and extract what remaining value they have after such a tough 17 months during the pandemic – and partly as the final piece of the “tax-planning jigsaw” after a business sale, in order to extract the remaining funds in a tax-efficient manner.
For those MVLs where it is simply an extraction of cash from a shell, we’ve seen lots of accountants using our My-MVL platform to allow them to promote, manage and control cash MVLs through our simple online system.
Accountants that have registered to use it do so because they are able to charge a fee for the work they undertake e.g. tax advice and information provision – while quoting a clear overall fee to their client as the use of the software is covered by a single fixed fee.
Michael Adams, from Yorkshire accountants Lima, is a regular My-MVL user and comments: “The My-MVL platform is fantastic. The system is very straightforward and easy to use, providing full clarity of the process from start to finish. A special mention to the team at Leonard Curtis that support the platform as they are a joy to work with.”
So, is time running out for tax-efficient capital gains?
Well, not withstanding what we said at the beginning of this year, we once again think the answer has to be “yes”. The government has continued to spend huge sums trying to support the economy and this needs to be repaid somehow.
In the US, President Biden has already set out plans to nearly double CGT for wealthy Americans – as we often follow what the US does and, with the Autumn Statement due in a few months’ time, we think it feels likely that a tightening of the CGT regime is coming – and soon.
If any of your clients are considering retirement, sale or exit and want to use an MVL to benefit from the tax advantages – the window of opportunity may not be open for much longer.
For more information on the MVL process get in touch with steve.markey@leonardcurtis.co.uk or 0161 413 0930.