Breakthrough On MVL and BADR Rates - Autumn Budget 2024
November 21, 2024
Before getting into the Autumn budget 2024 presented by Rachel Reeves, let us learn about Members’ Voluntary Liquidation (MVL) and Business Asset Disposal Relief (BADR). In the context of UK taxation, MVL (Members' Voluntary Liquidation) and BADR (Business Asset Disposal Relief) are important tax terms, particularly when dealing with the sale or dissolution of a company.
Members’ Voluntary Liquidation (MVL)
A Members' Voluntary Liquidation (MVL) is a popular route for directors and shareholders of solvent companies who wish to wind up the business orderly and tax-efficiently.
By distributing assets to shareholders as capital distributions, rather than income, the liquidation allows the company’s members to pay Capital Gains Tax (CGT) at favourable rates, particularly with the potential application of Business Asset Disposal Relief (BADR). However, while the process can be advantageous, it is important to ensure that the company remains solvent and that all legal requirements are met to avoid potential risks.
Business Asset Disposal Relief (BADR)
Business Asset Disposal Relief (BADR) (formerly known as Entrepreneurs' Relief) is a tax relief in the UK that allows business owners to pay a reduced rate of Capital Gains Tax (CGT) when they sell or dispose of certain business assets. The relief encourages entrepreneurship by lowering the tax burden on people who have built and sold qualifying businesses or assets.
What are the Autumn 2024 Budget changes concerning MVL and BADR?
Changes to Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR), formerly known as Entrepreneur's Relief, were predicted before the budget was presented on October 30. It should come as no surprise that both predictions came true, with the BADR rates changing as of April 6, 2025, and the CGT modifications being applied immediately.
Here are the changes that are made in the CGT and BADR
Tax type | Before Budget | 30 October 2024 | 6 April 2025 |
Capital Gains Tax Rate (CGT) | Lower 10% Higher 20% | Lower 18% Higher 24% | Lower 18% Higher 24% |
Business Asset Disposal Relief (BADR) | 10% | 10% | 14% |
What is the Right Time to think about closing a solvent company?
The government's modifications to Business Asset Disposal Relief are immediately applicable to solvent companies thinking about Members' Voluntary Liquidation. Business owners can disperse assets in a tax-efficient way through the MVL process, frequently using the relief to lessen any impending Capital Gains Tax obligation. However, if firms wait until after April 2025 to start the MVL procedure, they may lose out on tax savings due to the impending higher BADR rates. This indicates that the moment has come to think about whether this type of solvent liquidation is appropriate for them.
As a way to ensure a tax-efficient exit and closure of their solvent business, business owners should first determine whether their company qualifies for Business Asset Disposal Relief and how the MVL process operates. Before the tax rates increase in April 2025, you can get personalized guidance and figure out the best course of action by communicating with a knowledgeable professional.
For any further information about MVL, feel free to get in touch with Doshi Outsourcing.
