Members’ Voluntary Liquidations – the benefits
Members’ voluntary liquidations (MVL) are becoming more popular for shareholders and company owners to wind up a company and distribute assets in a tax efficient way. Alexander & Co assists a wide range of clients advising on the tax implications of these, ensuring any MVLs are undertaken in the most tax efficient way possible.
Below we outline the principals of a members’ voluntary liquidation alongside the benefits, which can include substantial tax savings for shareholders. If you require assistance, please contact us to discuss how we can help.
The benefits of an MVL
There are several key benefits of an MVL, including:
- MVLs can be competed relatively quickly
- Significant tax savings for shareholders
- Distributions to shareholders can also be actioned quickly
What are Members’ Voluntary Liquidations (MVLs)?
A members’ voluntary liquidation (or MVL) is the formal process in which to wind up the affairs of a solvent limited company and to distribute these to the shareholders as capital rather than income. This allows for preferential tax rates for the shareholders. A company which is solvent is one with more assets than liabilities, therefore able to pay off all debts. This needs to be actioned before the company is liquidated.
This method is often favoured as it can provide tax benefits, including capital gains tax being charged rather than income tax.
Who is a member in an MVL?
A member within the context of a MVL is effectively a shareholder of the company. At least 75% of shareholders are required to agree with an MVL for one to be actioned.
When would you use a members’ voluntary liquidation?
A MVL can be used for many reasons where a company is solvent. This includes:
- Where the shareholder(s) do not want to pass the business down, so prefer an exit.
- Where the owner of the business retires and does not want to continue with the business.
- Where the company may has fulfilled its purpose or is redundant.
- Where the company requires restructuring, but the liquidation and a new company is the most tax advantageous option.
Tax benefits of a members’ voluntary liquidation
These often provide tax benefits which include CGT being charged as opposed to income tax. Often shareholders currently qualify for Business Asset Disposal Relief, which can reduce the tax rate down to 10%. (As opposed to shareholders drawing the monies as a dividend, which could otherwise be treated as “income” for tax purposes and chargeable at up to 50%), although there are some anti-avoidance rules and tax complexities that you need to be aware of.
Following repayment of all creditors, when a company has reserves (cash or assets) totalling more than £25,000, it is typically more tax efficient to close a company through an MVL.
How long does a members’ voluntary liquidation take?
Once all liabilities have been settled and the required information is available, asset distribution to shareholders can be undertake in as little time as 21 days (being the minimum statutory time allowed for creditors to submit any claims following formal notice of liquidation).
The time frame dissolution is dependent upon HMRC clearance. This can significantly vary; However, this can often be within three months from the start of the formal process.
How Alexander & Co assists with an MVL
Alexander & Co works with clients to ensure any Members’ Voluntary Liquidation is executed in the most tax efficient way to to benefit the needs of the business owners and other stakeholders.
We also go further to look at the wider picture and advice on wider needs of business owners, including tax efficiencies for their other assets, wider succession planning and inheritance tax advice.
To discuss how are team can provide holistic advice to assist you and your business, please contact us by completing the enquiry form on this page, emailing info@alexander.co.uk or call one of our offices on either 0207 167 7220 or 0161 832 8481.
