As an entrepreneur, you may be considering a members’ voluntary liquidation (MVL) at some point in the future.
One of the key things to consider is whether or not you will be eligible for entrepreneurs’ relief.
This relief can potentially save you a significant amount of money in capital gains tax, so it’s important to understand how it works.
Generally speaking, entrepreneurs’ relief is available to individuals who have held at least a 5% stake in the company for at least 12 months.
The relief allows you to pay a reduced rate of capital gains tax on any shares that you sell as part of the MVL process. The maximum amount of gain that can be eligible for relief is £10 million, and the maximum rate of tax is 10%.
Of course, there are some restrictions and exceptions that you need to be aware of. For example, if you have been involved in certain types of “abusive” tax avoidance schemes, you may not be eligible for entrepreneurs’ relief. However, if you think you might be eligible, it’s definitely worth speaking to your accountant or financial advisor to see if it could save you money on your MVL
What is entrepreneur’s relief in members voluntary liquidation?
When a company is wound up voluntarily by its members, this is called voluntary members liquidation. To qualify for MVL, the company must be solvent, which means its liabilities must be less than its assets. Once the company is wound up, its assets are sold and the proceeds are used to pay off any debts and liabilities. Any remaining funds are distributed to the shareholders. Provided certain criteria are met, shareholders may be eligible for entrepreneur’s relief when they receive these payments.
This relief allows them to pay a reduced rate of capital gains tax on the money they receive. In order to qualify, the shareholder must have been a director or employee of the company during the twelve months prior to the commencement of the winding-up process.
In addition, they must have held at least 5% of the company’s shares during this time period. Entrepreneur’s relief can potentially save shareholders a significant amount of money, making it an important consideration when deciding whether or not to wind up a solvent company.
When might A members voluntary liquidation be useful?
Directors might be wondering in which circumstances a Members Voluntary Liquidation could be useful:
- Close down your solvent company and extract your hard earned cash.
- You may wish to ceased trading and close down your limited company.
- The trading activities of your company may have changed and the assets are no longer needed.
- Start a completely new trading venture extract your capital and open a new limited company.
- You may simply wish to retire.
Entrepreneurs’ relief 2 year rule
Business Asset Disposal Relief was known as Entrepreneurs’ Relief before 6 April 2020. To qualify for relief, both of the following must apply for at least 2 years up to the date you sell your business: you’re a sole trader or business partner. you’ve owned the business for at least 2 years.
What assets qualify for entrepreneurs’ relief?
Entrepreneurs’ relief is a capital gains tax relief that is available in the United Kingdom. The relief was introduced in 2008 and is currently capped at GBP 10 million. The relief is available on gains made on the sale of shares and business assets. This means that sole traders and partnerships can claim the relief when selling assets used in the business, just as company directors and other shareholders can claim the relief when selling shares (and/or assets used in the business).
For company shares to qualify, the company must be a trading company, or the holding company of a trading group. The relief is intended to encourage Entrepreneurship by making it more financially rewarding. The government has announced that the relief will be extended to cover gains made on the sale of intangible assets, such as patents and copyrights, from April 2019. This extension is expected to benefit a wide range of businesses, from tech startups to creative industries.
How much is entrepreneurs’ relief worth?
If you’re an entrepreneur looking to sell shares or business assets, it’s worth considering using entrepreneurs’ relief. This relief allows you to pay half as much capital gains tax (CGT) as you otherwise would. In order to qualify, your sale must take place within certain time frames and criteria set by HM Revenue & Customs (HMRC).
However, if you do qualify, this relief can save you a significant amount of money. The personal, lifetime limit for entrepreneurs’ relief is £10 million, meaning that you can potentially save up to £1 million pounds on CGT. Given the potential savings at stake, it’s definitely worth investigating whether or not you could qualify for entrepreneurs’ relief before making any sales.
How to qualify for entrepreneurs’ relief
If you’re a director of a company that’s insolvent, you might be considering a members voluntary liquidation. However, there’s an important tax consideration to take into account before making this decision – Entrepreneurs’ Relief. This relief is only available if you meet certain criteria, so it’s important to understand how it works before proceeding with a solvent liquidation.
Here’s what you need to know. To qualify for Entrepreneurs’ Relief, you must have been a director or shareholder of the company for at least 12 months before the date of the liquidation.
In addition, the company must have been trading for a minimum of 2 years. If these conditions are met, you may be eligible for a reduced rate of Capital Gains Tax on any gains made from the sale of your shares in the company.
However, there are a number of other requirements that must be met in order for the relief to apply, so it’s important to get professional advice before proceeding with a voluntary liquidation.
Read more: What are the costs of a MVL?
How can we help?
Business owners who are considering a members’ voluntary liquidation with a view on taking advantage to capitalise on the Entrepreneurs’ Relief.
Our team offer free advice on Entrepreneurs’ Relief or any aspect of members’ voluntary liquidations, please get in touch with our team.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.