Members Voluntary Liquidation Capital Gains Tax treatment is an important consideration for shareholders looking to close a solvent company. Members’ Voluntary Liquidations (MVLs) have long provided an effective and orderly way of bringing a company’s affairs to an end and distributing its remaining assets to shareholders.
However, with the Autumn Budget scheduled for 28 October 2026, and growing speculation surrounding further changes to Capital Gains Tax (CGT), business owners who are already contemplating an MVL may be paying particularly close attention to what could lie ahead. Chancellor John Healey, who was appointed by Prime Minister Andy Burnham on 20 July 2026, will deliver his first Budget on that date.
What is a Members’ Voluntary Liquidation?
An MVL is a formal liquidation process for a solvent company – one that is able to pay its debts in full. It is commonly used where a business owner is retiring, shareholders have decided that the company is no longer required, or a business has ceased trading, and the owners wish to extract the remaining funds and formally close the company.
The Insolvency Service specifically identifies retirement and circumstances where the owners no longer wish to run the business as common reasons for using an MVL. A company entering an MVL must be solvent and capable of paying its debts within 12 months.
Once the company’s liabilities and the costs of the liquidation have been settled, the remaining assets can be distributed to its shareholders.
Why are MVLs tax-efficient?
One of the attractions of an MVL is the way distributions to shareholders are normally treated for tax purposes.
Rather than being taxed as dividend income, distributions made by a liquidator are generally treated as capital distributions, with the shareholder treated as making a disposal of their shares. This means that Capital Gains Tax may apply to the gain.
For some shareholders, the position can be even more favourable where they qualify for Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief.
From 6 April 2026, gains qualifying for BADR are taxed at 18%, subject to the relevant eligibility conditions and the current £1 million lifetime limit on qualifying gains.
Broadly, where shares are concerned, qualifying shareholders will normally need to have satisfied conditions relating to their shareholding, employment or office-holder status and the trading status of the company for the required two-year qualifying period. Professional tax advice should always be taken to establish whether BADR is available in an individual case.
How does 18% compare with the normal CGT rate?
For the 2026/27 tax year, the main rates of CGT for individuals are 18% and 24%. Broadly, gains falling within an individual’s available basic-rate band are charged at 18%, while gains above that level are charged at 24%. The calculation takes both taxable income and taxable gains into account, so it is not simply a case of everyone with income below £50,270 paying 18% on the whole of their gain.
For a higher or additional-rate taxpayer whose gain would otherwise be taxed at 24%, therefore, qualifying for BADR at 18% currently represents a six percentage point saving.
By way of a simple illustration, a £100,000 qualifying taxable gain charged at 18% would produce CGT of £18,000, compared with £24,000 at the standard higher rate – a difference of £6,000.
It is worth clarifying that the principal CGT rates of 18% and 24% did not first increase in April 2026. Those rates were introduced for most individual gains from 30 October 2024. The further change on 6 April 2026 was to BADR: its rate increased from 14% to 18%.
Could CGT rise again?
This is where the forthcoming Budget becomes particularly relevant.
There has been increasing discussion about whether capital gains should be taxed more closely in line with earnings. No specific policy has been announced, and CGT is only one of a number of areas being highlighted by commentators as a possible candidate for reform.
Nevertheless, the debate has gathered momentum.
Former Labour leader Lord Kinnock, a political mentor of Prime Minister Andy Burnham, has publicly called for Capital Gains Tax rates to be brought into line with Income Tax rates.
The new Chancellor is widely expected to face pressure to raise additional revenues in his first Budget, and Mr Burnham has previously indicated that taxpayers may need to be asked to contribute “a little more”. Recent economic commentary has therefore identified taxation of capital and wealth – including possible CGT reform – as an area to watch.
However, increasing CGT is far from universally supported.
The Government has been warned that significantly higher rates could discourage investment or cause taxpayers to delay disposals.
Joshua Raymond, of investment platform XTB, has argued: “Capital gains tax has historically been lower than income tax because investing involves the possibility of losing money. The lower CGT rate provides an incentive against that risk. If the two were aligned, that recognition would be lost.”
The argument is that investors and entrepreneurs accept the possibility that an investment or business may fail and that a differential between the taxation of earned income and investment gains provides some recognition of that risk. Critics of higher CGT rates therefore argue that bringing the rates too closely together could discourage future investment and entrepreneurship.
There is also a practical question over how much additional revenue higher rates would ultimately generate. Because CGT generally arises when a gain is realised, taxpayers may respond to higher rates by delaying or avoiding disposals – something that commentators have highlighted when considering possible reform.
What could this mean for shareholders considering an MVL?
For shareholders who have already made the commercial decision to cease trading and close a solvent company, the uncertainty surrounding the Autumn Budget gives another reason to review their position sooner rather than later.
That does not mean that an MVL should be undertaken simply in anticipation of a possible tax increase. No CGT increase has been announced, and decisions should be based on the company’s circumstances with appropriate insolvency, accounting and tax advice.
There is also an important point regarding timing. Simply placing a company into MVL before 28 October does not necessarily guarantee that the current CGT rates will apply. For CGT purposes, HMRC states that the shareholder disposal occurs when the liquidator makes distributions to shareholders.
There are also anti-avoidance provisions which can, in certain circumstances, cause a liquidation distribution to be treated as income rather than capital – particularly where a shareholder continues to carry on the same or a similar trade within two years and the relevant tax-avoidance conditions are met.
The key message is therefore not to panic, but to plan.
If you are already considering closing a solvent company, now may be a sensible time to speak with your accountant, tax adviser and an Insolvency Practitioner to understand your options, establish whether an MVL is appropriate and determine whether you may qualify for Business Asset Disposal Relief.
At DCA Business Recovery, we regularly assist directors and shareholders with solvent liquidations and can explain the MVL process, anticipated timescales and the practical steps involved.
If you are considering closing a solvent company and would like to discuss whether an MVL may be suitable, please get in touch with our team.
