Tax rates on Members' Voluntary Liquidations (a specific type of liquidation) are set to increase from 6.4.25. What may currently attract a tax rate of 10% will increase to 14% from 6.4.25, and further to 18% from 6.4.26. For businesses considering the process, urgent action is needed if the aim is to meet the deadline before the end of the 2024/25 tax year.
The 2024 Autumn Budget introduced numerous changes, some of which were and continue to be covered in detail, perhaps ‘stealing’ some of the limelight from other measures announced.
A significant change that may have been overlooked, or at least, kicked to the bottom of the list, is the tax rate increase affecting Members Voluntary Liquidations (‘MVLs’). For those not au-fait with the process, when a business owner sells or winds up their solvent company using an MVL, they may be eligible for Business Asset Disposal Relief (‘BADR’), providing a lucrative tax rate of 10%.
This is set to change – as a reminder, the capital gains tax (‘CGT’) position will be as follows:
CGT rates, taking effect from April 2025:
- Basic rate taxpayers = CGT rate rises from 10% to 18%
- Higher rate taxpayers = CGT rate rises from 20% to 24%
BADR:
- From April 2025 = rate increase from 10% to 14%
- From April 2026 = rate increase to 18%
Business owners closing their companies via an MVL after 5th April 2025 will therefore face higher tax rates than currently.
Actions - for any business owners currently considering an MVL, it would be advisable to progress this asap if they wish to try and take advantage of the current 10% BADR rate. As always, the advice of a trusted accountant/tax advisor is the best first step.