If you’re retiring or selling your business, you may be considering, with your Accountant, a Members’ Voluntary Liquidation (MVL) to optimise tax relief.
Do you realise you can reduce tax on capital gain even further when winding up a solvent company by applying for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief)? BADR reduces the tax rate to 10% on qualifying assets up to the first £1 million received by shareholders in their lifetime.
Investigating BADR should be a routine part of the MVL process for all company directors and accountants.
What is Business Asset Disposal Relief (BADR)?
An MVL is a tax efficient process for shareholders to receive the surplus cash and/or assets from their company once it has fulfilled its purpose, stopped trading and paid all of its debts in full.
Directors may choose to go down this route for a variety of reasons, including simplification of a group of companies, the completion of a project which a company was specifically created for, the sale of a company business that does not include the entity’s shares, or the retirement of the company’s owners.
Under UK law, winding up the company through an MVL means the distribution of the surplus assets and cash by a liquidator to shareholders is treated as a capital distribution for tax purposes. In certain circumstances, shareholders may also qualify for BADR, which reduces the tax on the capital gain even further.
What are the conditions for Business Asset Disposal Relief (BADR)?
BADR can provide significant tax relief on the disposal of business assets and can make the liquidation process more financially advantageous for business owners. However, it is important to be aware of the restrictions and limitations.
BADR is only available to individuals, not companies, and certain criteria must be met in order to qualify for tax considerations:
- The business owner must have owned the business assets for at least two years prior to disposal.
- He or she must have been a shareholder or director of the company for at least two years prior to the liquidation.
If these criteria are met, the business owner may be eligible for a reduced tax rate of 10% on the disposal of qualifying assets, up to a lifetime limit of £1 million.
Qualifying assets include shares, property used by the business, and assets used in the business, such as machinery and equipment. Non-qualifying assets include cash held by the business, and investments not used in the business.
Some restrictions apply. For example, if the business owner has already used up their £1 million allowance on previous disposals, they will not be eligible for BADR on any further disposals. The tax relief is not available for disposals of assets to a connected person, such as a family member or business partner.
How we help.
At BABR, dealing with MVLs is a large part of what we do. We are experts at supporting our clients through the process in the most tax-efficient and hassle-free way possible.
We support company directors and their accountants in managing the structured wind-down of trade and coordinate the formalities of placing the company into MVL.
Once in MVL, we act as the liquidators to ensure that all debts have been paid before returning surplus cash and/or assets to the company’s shareholders.
Book your free consultation now
If you are eligible for BADR and want us to quote for your MVL, contact us today for a free, no-obligation consultation with a qualified insolvency practitioner.