Autumn Budget 2024 - The Future of Members’ Voluntary Liquidations

What the Autumn Budget means for solvent liquidations this year and beyond

The Chancellor of the Exchequer, Rachel Reeves, announced an increase in headline Capital Gains Tax rates as well as the rate of Business Asset Disposal Relief (BADR) during the Autumn Budget on 30 October 2024.

These upcoming changes to Business Asset Disposal Relief rewrites the tax rules for Members’ Voluntary Liquidations (MVL), a formal liquidation procedure for solvent companies.

MVLs will still continue to offer a highly tax-efficient exit route to company directors into the future, however, if you have solvent clients looking to liquidate their company, time is of the essence if you want to help them achieve the most cost-effective closure possible.

The move comes as the new Labour government searches for ways to plug a £22 billion black hole in the public’s finances by raising taxes as opposed to implementing spending cuts. The Chancellor marked the Autumn Budget as an opportunity to fix the foundations and deliver change as she unveiled the first Labour Budget in 14 years.

What are the tax implications of a Members’ Voluntary Liquidation, post-Autumn Budget?

When closing a solvent company through a Members’ Voluntary Liquidation, distributions are treated as capital, rather than income, and therefore, taxed at a lower rate. MVLs are highly popular with solvent companies with substantial retained profits as they allow directors to extract funds tax-efficiently.  

Here are the changes announced in the Autumn Budget:  

Increase in Capital Gains Tax rates – Capital Gains Tax has increased from 10% to 18% for lower rate taxpayers and from 20% to 24% for higher rate taxpayers, with no changes to the Annual Exempt Amount (AEA) of £3,000. 

The Capital Gains Tax increase announced in the Autumn Budget reduces the gap between Capital Gains Tax and Income Tax rates, although it remains significant enough to encourage entrepreneurs to invest in their businesses. 

Business Asset Disposal Relief changes – The rate of Capital Gains Tax available under Business Asset Disposal Relief remains at 10% this financial year, rising to 14% in April 2025 and 18% in 2026. The lifetime limit of £1m remains unchanged.

Currently, Business Asset Disposal Relief reduces CGT to 10% on all qualifying gains, a major tax incentive that benefits company directors providing the conditions are met. While BADR continues to provide access to reduced rates of Capital Gains Tax, the CGT rate available under BADR is set to increase from 6 April 2025.

What does this mean for clients considering closing a solvent company?

Anticipated changes to Capital Gains Tax and Business Asset Disposal Relief had already prompted exiting business owners to accelerate business disposals ahead of the Autumn Budget, however, those biding their time must act now to minimise their tax liability.

While an MVL remains a highly tax-efficient exit route for company directors, disposals made before 6 April 2025 will generate greater tax savings. Accountants must advise clients considering closing a solvent company to enter an MVL sooner, rather than later, to avoid a substantially higher Capital Gains Tax liability.

For more information on timing a Members’ Voluntary Liquidation ahead of Capital Gains Tax changes, get in touch with your local licensed insolvency practitioner at Begbies Traynor Group. We offer a no-obligation confidential consultation to clients and work closely with our accountant partners to answer any MVL-related queries.