Good news for those planning a Members’ Voluntary Liquidation (MVL)Posted: Apr 7, 2021

The answer to the question ‘when is a good time to close your solvent business’ is never an easy one. However, with capital gains tax and asset disposal relief both still working in your favour, if you are looking to close your solvent business then 2021 or early 2022, may well be the time to make the move. If not, you could see a much less favourable tax landscape in the future.

Remember the Budget for 2021? It was, as we wrote at the time, one of the most surprising and impactful Chancellor’s speeches in many years. Among all the new grants, tax changes and announcements, one of the biggest surprises to me was that there were no principal changes to Capital Gains Tax (CGT). Equally odd was the Business Asset Disposal Relief (BADR), the thing we all probably still think of as entrepreneurs’ relief, also escaped without significant changes. Before the budget, I would have put money on one, possibly both, of those being a target for clawing back some of the covid relief costs. Fortunately, I am not a betting man!

The reason this was all so surprising is that The Treasury had already consulted on changes to CGT and the suggestion seemed to be to raise the much lower CGT rates and equalise it with the income tax rate. If not that, then at least lower the annual allowance. Either of these moves would certainly have procured substantial sums for the Treasury.

It seemed so odd that the government would ignore this potential income that I then went on to warned people that they should watch out for Tax Day (23 March 2021). For those of you who are unfamiliar with it, Tax Day is the point at which the Government lays out its future thoughts on coming tax changes amongst other things. I felt there was a good chance that we would see the changes to CGT and BADR that had been missing in the budget, so I advised caution until we had full clarity of the Chancellor's intentions. This could well still be the point where a change to one or the other appeared. Again, I would have put money on an adjustment to CGT, and yet again I (and many others) would have been proved wrong.

So, the good news is that for directors and shareholders who are looking to either retire or exit from their solvent company the CGT rates are the same. Not only that but if it applies to your circumstances, you can still claim Business Asset Disposal Relief.

Winding down a business can take some time and can also be complex. We often help directors plot a course through the complexity so that, by the time we are formally appointed as liquidator, it is a straightforward and simple process. From that point, it is usually plain sailing to the final closure of the business because we have already done the right preparation.

Having lost my bet twice has not changed my mind. There is always doubt, as the last budget showed us, but don’t be surprised if CGT rates, allowances or BADR get looked at again. The bottom line is that if the Government needs to raise extra money, which I think we all suspect it will, CGT is one of the few remaining taxes where it hasn’t publicly committed to not bringing in a change. CGT and BADR may have escaped the Chancellor's attention in the budget but they are both low-hanging fruit if he needs to boost the coffers in the Exchequer. That doesn’t bode well for their long-term stability.

Call us if you have any questions about MVL, exit planning or any other areas. All initial calls are free of charge, confidential and impartial.