MVLs (Member Voluntary Liquidations) are often used as an exit tool when a profitable company has reached the end of its useful life, where shareholders are keen to extract the profits of their investment, or if its directors are approaching retirement or otherwise looking to depart from the business for any other reason.
A MVL can allow for significant tax savings, especially if the shareholders are higher rate taxpayers. This is because distributions may be eligible to be taxed as capital gains tax instead of as income tax. In many cases, shareholders pay only 10% tax on the extracted profits thanks to entrepreneur’s relief instead of paying income tax at 40 or 45%.
For many years, experts in the industry have whispered about the risk of entrepreneur’s relief being removed as it is rumoured to cost the government £2.4bn in uncollected revenue each year. Thankfully, this was retained, which allowed us to continue to assist our clients in maximising the returns from their companies by benefiting from large and legitimate tax savings. If you want to get some more information about MVLs, you can click here to see the benefits and how they work.
The Office of Tax Simplification (OTS), a Treasury-based body, was recently asked by The Chancellor to consider reforms to capital gains tax to simplify the tax. This is also a potential way of increasing tax revenues in light of the economic and fiscal impact of the Covid-19 crisis. It is believed that this could bring in an extra £14bn by reducing exemptions and doubling rates.
There was a sigh of relief on 25 November when no changes were announced. However, many experts believe that changes in 2021 are now inescapable.
Therefore, for company owner-mangers considering changes, now might be the perfect time to consider winding up the company and extracting the profits of their hard work.