What do Autumn Budget changes mean for solvent liquidations? – London Business News | Londonlovesbusiness.com

Labour’s first major fiscal statement, the Autumn Budget, sent shockwaves across key UK sectors as significant tax changes were announced, changing tax, succession and future planning strategies in place for businesses.

Capital Gains Tax changes announced in the Autumn Budget also directly impact limited company directors considering closing a business in the near future.

Jonathan Munnery, a Members’ Voluntary Liquidation expert at UK Liquidators, explains the solvent liquidation process and what Capital Gains Tax changes mean for limited company directors.

What’s a solvent liquidation?

A solvent liquidation is the process of closing a solvent limited company. A company that’s solvent can afford to pay liabilities as and when they fall due.

There are two routes a company director may consider when closing a solvent company:

• Company strike off, also known as dissolution
• Members’ Voluntary Liquidation (MVL)

One simple test can typically determine which route is suitable, paired with professional advice from a licensed insolvency practitioner. If the solvent company has over £25,000 in retained profits, the director should consider an MVL to extract funds tax-efficiently and close the business. If the company has minimal to no assets/profits, the director should consider dissolving the company if all debts to creditors have been settled.

Speak with a licensed insolvency practitioner when considering the best route for closing a solvent limited company. As the designated professional for company liquidations, insolvency practitioners can take stock of the wider position of the business and recommend the most suitable exit tool.

What’s a Members’ Voluntary Liquidation?

A Members’ Voluntary Liquidation is a formal liquidation procedure for solvent limited companies, handled by a licensed insolvency practitioner. It’s a highly popular exit route for profit-rich companies as the associated tax treatment means company directors can extract profits highly tax efficiently.

When closing a company via an MVL, profit distributions are treated as capital and therefore, subject to Capital Gains Tax.  This generates a lower tax bill, than if the distributions were treated as income and subject to Income Tax.

Further tax relief is available through Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, if the qualifying conditions are met. BADR incentivises entrepreneurs by reducing their exposure to financial risk when starting their own businesses.

How do Capital Gains Tax changes fit in?

Capital Gains Tax and Business Asset Disposal Relief were part of the Chancellor’s hitlist of business tax measures subjected to a hike. The changes were announced as part of the Autumn Budget on 30 October 2024.

The Chancellor of the Exchequer, Rachel Reeves, said during the Autumn Budget that a significant gap between CGT and Income Tax rates would be maintained to encourage entrepreneurs to invest in their businesses.

Capital Gains Tax – Capital Gains Tax increased from 20% to 24% for higher rate taxpayers and from 10% to 18% for basic rate taxpayers, following the Autumn Budget.

Business Asset Disposal Relief – If a company director qualifies for BADR, this reduces Capital Gains Tax liability to 10%. Following changes announced in the Autumn Budget, this rate will increase to 14% from 6 April 2025 and 18% in 2026.

While the tax treatment of an MVL has changed following the Autumn Budget, the overall tax appeal of an MVL remains intact.

How can a director put a company into Members’ Voluntary Liquidation?

To place a company into Members’ Voluntary Liquidation, the company director must appoint a licensed insolvency practitioner who will act as the liquidator throughout the MVL process.

When choosing an insolvency practitioner, check that they are licensed and reputable, and ensure to differentiate between lead generation companies disguised as insolvency advisers and genuine insolvency practitioners.  

If an MVL is the right exit plan for the company, the insolvency practitioner will advise the director to settle outstanding affairs with creditors, and once complete, they will kickstart the MVL process.