Autumn Budget 2024 and its impact on solvent liquidations

The Autumn Budget, delivered by the Chancellor of the Exchequer, Rachel Reeves, on October 30, 2024, has introduced significant changes that will affect members' voluntary liquidations (MVLs). 

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What is a Members' Voluntary Liquidation (MVL)?

An MVL is a formal liquidation procedure for solvent companies, handled by a licensed insolvency practitioner. It is a popular choice among company directors because it allows them to extract profits tax-efficiently and bring the business to a close. 

The key advantage of an MVL is that profit distributions are treated as capital rather than income, making them subject to Capital Gains Tax (CGT) at a lower rate than Income Tax. 

Additionally, further tax relief can be claimed through Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, if eligible.

Changes Introduced in the Autumn Budget

The Autumn Budget has targeted several tax measures, including CGT and BADR, which are crucial components of an MVL. 

The Chancellor's approach focuses on raising taxes rather than imposing spending cuts, aiming to generate a record £40 billion in taxes.

Capital Gains Tax (CGT)

One of the significant changes is the increase in CGT rates. 

The lower and higher main rates of CGT have risen to 18% from 10% and to 24% from 20%, respectively, for disposals made on or after October 30, 2024. 

Despite these increases, the Chancellor emphasised maintaining a significant gap between CGT and Income Tax to encourage entrepreneurs to continue investing in their businesses. 

This means that although CGT rates have increased, an MVL remains a desirable exit tool for company directors.

Business Asset Disposal Relief (BADR)

BADR rates will also see an increase. 

The rate for BADR will rise to 14% from April 6, 2025, and further increase to 18% from April 6, 2026. 

These new rates will be legislated for in Finance Bill 2024-25. 

While BADR remains at 10% for the current 2024-25 tax year, company directors planning to liquidate a solvent company soon should consider accelerating their disposal to maximise tax savings.

Choosing the Best Route for Liquidating a Solvent Company

For business owners considering closing a solvent limited company, determining the best route is crucial. 

If the company has over £25,000 in retained profits, an MVL could be more tax-efficient than dissolving the company (striking off). 

While CGT rates have increased with immediate effect, BADR remains at 10% for the current tax year, set to increase on April 6, 2025. Therefore, a members’ voluntary liquidation remains a highly tax-efficient exit route even after the BADR rate increases.

Conclusion

The changes introduced in the Autumn Budget have significant implications for members' voluntary liquidations.

Despite the increase in CGT and BADR rates, an MVL continues to be a favourable option for company directors looking to close their businesses tax-efficiently. 

Business owners should consider the timing of their liquidation to maximise tax savings and consult with a licensed insolvency practitioner to navigate these changes effectively.

Contact us

If you would like assistance in establishing whether an MVL is appropriate for you or other advice following the exit of your business, please contact a Member of the Restructuring Team for a conversation.