What are the Advantages of a MVL?:
A key advantage of a Members’ Voluntary Liquidation (MVL) is the tax efficiency it offers to shareholders. Distributions made during an MVL are generally treated as capital gains, rather than income, meaning they are subject to Capital Gains Tax (CGT) instead of Income Tax. Crucially, CGT is applied only to the profit made — the difference between what the shareholder originally paid for the shares and the amount they receive, rather than the full distribution. Since CGT rates are typically lower than income tax rates, an MVL can provide a more tax-efficient way to extract value when closing a solvent company.
There is also Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, which is a tax relief that can be claimed when selling a business or its assets, potentially reducing CGT. Those who qualify for BADR pay 10% CGT on qualifying gains rather than a standard rate of 20%, up to a lifetime limit of £1 million on gains.
Another advantage of an MVL is that the process is overseen by a licensed Insolvency Practitioner, ensuring that all legal and regulatory requirements are properly followed. This provides directors and shareholders with peace of mind, knowing the company is being wound up in a compliant and professional manner.
What are the Disadvantages of a MVL?
To initiate a Members’ Voluntary Liquidation (MVL), the directors must sign a Declaration of Solvency. This confirms that the company can pay all its debts in full within 12 months of entering liquidation. If it becomes clear that the company cannot meet this commitment, the MVL is converted into a Creditors’ Voluntary Liquidation (CVL), and the company’s assets are then used to repay creditors.
