How could potential Capital Gains Tax changes impact Business Asset Disposal Relief when closing your business?

Understanding CGT and Business Asset Disposal Relief during an MVL

Rumours are swirling that the new Labour government are proposing changes to Capital Gains Tax which could in turn affect the current Business Asset Disposal Relief scheme (formally known as Entrepreneurs’ Relief).

This could have huge repercussions for any company director looking to close down their solvent business using the Members’ Voluntary Liquidation (MVL) process in the future.

Currently, when a solvent company is closed using a formal insolvency process known as a Members’ Voluntary Liquidation, all funds and assets extracted from the company are distributed to shareholders as capital gains rather than income and are taxed accordingly.

This means instead of being taxed at your usual rate, distributions are taxed at the current rate of Capital Gains Tax of 20% which can be halved if Business Asset Disposal Relief (BADR) is used as part of the liquidation process.

Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief, can be used by directors/shareholders to halve the payable rate of Capital Gains Tax down to just 10% when disposing of businesses or business assets either through a sale or a solvent Members’ Voluntary Liquidation process. Business Asset Disposal Relief can be used up to a lifetime limit of £1m worth of gains.

The autumn Budget scheduled for 30th October 2024 is likely to include some changes to the current taxation system in the UK. With increases to income tax and National Insurance already ruled out, this leaves a number of other taxes, including Capital Gains Tax, potentially in line for adjustment.

Any announced changes to Capital Gains Tax or Business Asset Disposal Relief are likely to trigger a flurry of directors looking to place their solvent company into a Members’ Voluntary Liquidation process ahead of any new rules coming into play.

“Spoke with Chris who put me at ease straight away. He was very knowledgeable and listened intently to all my worries and concerns. Will definitely be using Real Business Rescue and advise anyone with business issues to give them a call.”

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Contact the Real Business Rescue Team today

Chris Bristow
Business Debt Expert

Whether any potential changes to Capital Gains Tax will be implemented immediately or phased in, is yet to be seen. While amendments to tax rates have historically been announced prior to implementation at the start of the following tax year in April, more recent changes have been effective immediately upon announcement.

If you know you want to liquidate your solvent business and are keen to take advantage of Business Asset Disposal Relief in its current form, time is of the essence. By starting the process before any announcements are made in the upcoming Budget, you put yourself in the best position possible for extracting the profits tied up in your limited company in the most cost-effective and tax-efficient manner available.

For more information on Members’ Voluntary Liquidations or how any changes to Capital Gains Tax could affect you and your solvent company, call the Real Business Rescue team today on 0800 644 6080 for immediate help and advice.