The recent changes to Entrepreneur’s Relief together with a recent review of capital gains tax by the Office of Tax Simplification (which may result in capital gains tax rates doubling) could see those wishing to close their solvent business bringing their exit plans forward to ’lock-in’ more favourable current tax rates.
A Members Voluntary Liquidation (MVL) is a tax efficient vehicle that can be used by solvent companies seeking to close the business for reasons such as retirement, the business has run its course, shareholders seeking to extract their investment, restructuring or extracting cash after the sale of assets.
Distributions made to shareholders in MVLs are normally distributions of capital rather than income.
CGT is typically levied at 10% and 20% for disposals and in many cases shareholders in an MVL will qualify for the lower 10% under Business Asset Disposal Relief. However, reports suggest that this 10%-20% rate could be doubled in line with income tax. It is expected that the changes will be announced in the March 2021 Budget and come into effect in April 2021 and as such, many businesses wishing to close down may now want to bring their exit plans forward to avail of the current more favourable rates.
Whilst every effort has been made by CavanaghKelly to ensure the accuracy of the information here, it cannot be guaranteed and neither CavanaghKelly nor any related entity shall have liability to any person who relies on the information herein. Information given here is for guidance only. Detailed professional advice should be taken before acting on any information contained herein. If having read the guidance here, you would like to discuss further; a member of our team would be pleased to help you.