Solvent liquidation: why timing matters more than ever

With the rate of Capital Gains Tax for business asset disposals increasing from 6 April 2026, is now the moment to effect a solvent liquidation?

Budget 2025 full summary download (pdf)
Tax Tables 2026/27 (pdf)

As the new tax year approaches, business owners considering a solvent exit strategy should take note: significant changes to Business Asset Disposal Relief (BADR) came into effect from 6 April 2025 (Autumn 2024 Budget), with further increases confirmed for 2026.

These changes will directly impact the tax efficiency of Members’ Voluntary Liquidations (MVLs); a popular route for extracting retained profits from a company.

What Is BADR and Why Is It Important?

BADR (formerly Entrepreneurs’ Relief) allows qualifying individuals to pay a reduced rate of Capital Gains Tax (CGT) on gains from the disposal of business assets, including shares in a trading company.

The relief is capped at a £1 million lifetime allowance, and currently offers a 14% CGT rate, compared to the standard 24% rate for higher-rate taxpayers.

What is Changing?

From 6 April 2026, the BADR rate will increase from 14% to 18%.

While still lower than the standard CGT rate, the increase represents a substantial rise in tax liability for qualifying disposals.

Why MVLs are Still Relevant, but timing Is critical

An MVL allows shareholders to extract surplus capital as capital gains, rather than income (at higher rates), making it a tax-efficient exit route.

Provided BADR conditions are met, including:

holding at least 5% of shares and voting rights,
being an officer or employee, and
having held shares for at least 24 months

shareholders can benefit from the reduced CGT rate.

However, with the rate increase looming, early planning is essential. MVLs can take several weeks to complete, and distributions must be made before 6 April 2026 to benefit from the current 14% rate.

Key Considerations for Business Owners

Act Early: Initiate the MVL process well before the April deadline to ensure distributions qualify for the 14% rate.
Confirm Eligibility: Ensure shareholders meet all BADR criteria — especially in cases involving multiple share classes or recent restructuring.
Seek Specialist Advice: Tax and insolvency professionals can help navigate the complexities and avoid common pitfalls that could jeopardise relief claims.

The upcoming changes to BADR mark a shift in the tax landscape for business exits. While MVLs remain a powerful tool for solvent company closures, the window for maximising tax efficiency is closing. For those considering a liquidation, now is the time to act.