Written by Jamie Callaghan
With the Chancellor’s Spring statement fast approaching, those business owners contemplating retiring or exiting their business will no doubt be considering the possible implications for them should the Government announce changes to the Capital Gains Tax (‘CGT’) regime.
As the Government continues to deal with the aftermath of unprecedented borrowing to support the economy during the pandemic, some consider that CGT could be next on the Chancellors hit-list to raise funds. This could be achieved through the removal of business asset disposal relief (‘BADR’) or, as recommended by the Office of Tax Simplification, increasing the CGT tax rate.
Business owners can mitigate their risk now by discussing a Members’ Voluntary Liquidation (‘MVL’) with an Insolvency Practitioner to explore whether it is an option suitable for them.
An MVL is an option for solvent companies wishing to wind down their activities and allows for assets to be distributed in a tax-efficient manner, whilst also giving directors certainty given the finality of the liquidation process. Subject to certain conditions, distributions made in an MVL can qualify as capital distributions and business owners can avail of BADR with a tax rate of 10%. At current rates, this relief can save business owners up to £100,000 in CGT.
An MVL is only an option for solvent companies meaning that the company must hold enough assets to be able to settle all liabilities and interest in full, normally within 12 months. Due to the ability under company law to hold members’ meetings at short notice, companies can often be placed into an MVL within a couple of days.
While no-one really knows what the Chancellor’s plans are for CGT come 23rd March and beyond, business owners should always keep one eye on their exit strategy and plan accordingly. This will ensure their company’s activities are wound down in the most efficient possible manner.