An overview of Members Voluntary Liquidation (MVL) for Business Asset Disposal Relief (BADR).
Written by Louise Barker, Group Marketing Director at Opus Advisory Group – Companion Accountancy’s third-party partner.
Once upon a time, Business Asset Disposal Relief (BADR) used to be called Entrepreneurs Relief.
It has long been a boon for entrepreneurs selling their businesses.
This is because it effectively lowers the rate of Capital Gains Tax (CGT) on the net disposal proceeds from the realisation of business assets, or at least it does for the first £1 million of proceeds.
Instead of paying CGT at the full rate, a lower BADR rate applies to that initial £1 million tranche.
Up to the day before the Autumn Budget on 30 October 2024, that reduced rate was 10% as compared to CGT at 20%. That meant a very welcome tax saving of up to £100,000 could be achieved.
How tax effective are MVLs following the Budget announcement?
The optimum route for most disposals of the business assets held in a Company and the distribution of the proceeds to Shareholders is via a Members Voluntary Liquidation (MVL). These are undertaken by an Insolvency Practitioner who must act as the Liquidator.
Very much as anticipated, the Chancellor took the opportunity to increase tax revenue receipts. This was done by hiking the CGT rate to 24% immediately and the rate on distributions within the BADR limits to 14% from 6 April 2025 and 18% from 6 April 2026.
So, what does this mean for the tax effectiveness of MVLs?
The table below compares the return to a Shareholder on a £250,000 distribution from an MVL in each of the tax periods affected assuming that BADR is available and the annual CGT exemption of £3,000 applies.
| Date funds distributed | Funds distributed £ | CGT payable £ | Net return to Shareholder £ | Extra CGT payable £ |
| 30 October 2024 – 5 April 2025 | 250,000 | 24,700 | 225,300 | Nil |
| Year ended. 5 April 2026 | 250,000 | 34,580 | 215,420 | 9,880 |
| Year ended. 5 April 2027 | 250,000 | 44,460 | 205,540 | 19,760 |
In practice, the Liquidator pays the gross amount of £250,000 to the Shareholder, who must report the distribution as a Capital Gain and account for the CGT payable.
Is an MVL the best route?
The outcome is that using an MVL as the route to facilitate the distribution of the surplus funds in the Company will continue to be a beneficial way of saving tax. But the sooner the MVL is initiated and completed, the better the tax outcome and the less money will go to HMRC.
Best of all right now would be to get an MVL under way and finished by 5 April 2025. This is still achievable, but the deadline is getting tight.
The only exception is where the funds remaining in the Company are less than around £25,000. In which case, another option may be to distribute the funds to the shareholder and then have the company struck off without an MVL because the CGT payable may be less than the cost of an MVL.
What should I be considering now if I want to close my business?
MVL or Strike-Off?
It depends on the Directors understanding/appetite for risk. This is an issue best discussed in detail with an MVL Practitioner, who will be able to advise on the best route to take, depending on the circumstances of the Company.
If you or your client are thinking of exiting your business or investments before 5 April 2025, we recommend consulting with an MVL Practitioner. Engage with them early to ensure the assets are distributed before 5 April.
Businesses owners need to factor in that MVL Practitioners are expected to be busy ahead of this tax year end. Due to AML procedures as well as drafting the paperwork, onboarding clients can take time.
Priority for any MVL Practitioner will naturally be to the clients who have engaged earlier. So, our advice to make sure you exit before 5 April 2025.
Plan and execute your strategy early. Speak to an MVL Practitioner now and understand what needs to be actioned this New Year.
