30th January 2020
By Steve Markey, Associate Director at Leonard Curtis, providers of the Lifecycle accountancy network
It has been widely reported that Entrepreneurs’ Relief (ER) may be under threat in the upcoming Budget as the Government tries to reduce leakage from a tax break that amounts to an estimated £2.4billion a year. Reports suggest that the current 10% Capital Gains Tax (CGT) rate where ER applies could be raised and the £10million lifetime limit reduced in Chancellor Sajid Javid’s Budget on 11th March. Others can’t rule out the possibility that it will be abolished altogether.
If this speculation is correct then it means that those who qualify for what is such a valuable tax relief may have only a few more weeks to enjoy the rate of 10% on gains from the disposal of certain business assets and shares – a much more palatable percentage than the standard 20% CGT rate or even higher Income Tax rates.
We work with many business owners who want to close a company via a solvent, Members’ Voluntary Liquidation (MVL) because, under tax legislation, distributions of cash and other assets made by a Liquidator in an MVL are generally treated as capital rather than income and therefore benefit from lower tax rates. As noted above, capital gains can be further reduced where ER applies.
Time may be running out
So, if any of your clients are considering a solvent liquidation in order to realise value from a company at the end of its useful life on the basis that ER will be available, then it may be advisable to act sooner rather than later. While commentators expect any changes to come into force in the next tax year, we have seen situations in the past where changes announced in the Budget have been effective on the day – and 11th March isn’t that far away!
Who could benefit from an MVL
In the SME arena – where Leonard Curtis operates – we tend to work with accountants and their business owner clients who are retiring or have sold the business through the limited company. It’s also an effective way to wind up businesses set up for a specific project that has been completed, when the profits and accumulated reserves must be extracted from the company by its shareholders.
MVLs are also proving to be a popular route for those accountants whose freelance contractor clients need to wind up their personal service companies ahead of IR35 being rolled out to the private sector this April.
Adding value and expertise
Whilst many MVLs can be quite straightforward, there can be a number of complicating factors. This is why it is important to take specialist advice before beginning the process. At Leonard Curtis, the specialist MVL team works in partnership with accountants to ensure that the best possible solution is secured for their clients.