In short:
Members’ voluntary liquidations (MVLs) are considered the most tax-efficient way to close a business.
MVLs allow distributions to be counted as capital rather than income, unlocking lower tax rates.
Those opting for an MVL may qualify for Business Asset Disposal Relief.
A members’ voluntary liquidation is a great way to close a solvent company. Not only does it provide a simple and effective means of wrapping up a business closure, it also provides some other benefits for directors.
Chief among these are the tax advantages that can be enjoyed as a result of opting for a members’ voluntary liquidation.
But what can a business owner expect to gain from closing their business via this method?
Capital Gains Tax
Business closure expert, Ben Westoby explains that “the main draw tax-wise for those opting for a members’ voluntary liquidation is the ability to treat shareholder distributions as capital instead of income or dividends.”
As capital is taxed differently to income/dividends, this means that there can potentially be some big savings to be had, especially for those who find themselves in higher tax brackets.
Capital Gains allowance
Although this has taken a hit over the last few years, there is still a portion of any capital gains that is ring-fenced from tax.
As of October 2025, that figure stands at £3,000 of tax-free capital. This means that the first £3,000 of any capital gains is exempt from tax.
Westoby adds that this allowance “was previously £6,000, and before that it was a hefty £12,300 as recently as 2023. While the current allowance is significantly less than this, it still represents a strong tax saving compared to distributions treated as income.”
Business Asset Disposal Relief
A members’ voluntary liquidation allows directors to apply for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). Using Business Asset Disposal Relief currently reduces Capital Gains Tax to 14% on all assets that qualify (October 2025), though this will increase to 18% in 2026.
Despite this significant increase, it will still represent a saving compared to the higher tax payer rate of 24% tax paid without this relief.
Who and what qualifies for Business Asset Disposal Relief?
Business Asset Disposal Relief is available to those selling all or part of their businesses, and directors disposing of shares in a company that trades (rather than a non-trading company such as investment firms).
At least 5% of voting rights must be held by shareholders hoping to qualify, with those shares having been held for a minimum of two years prior to the liquidation.
Looking at closing down your business?
Liquidation offers a quick, clean closure that allows you to focus on your next venture. Find out if your business qualifies with our Limited Company Liquidation Test →
Example of Business Asset Disposal Relief
A distribution of £450k to a higher-rate taxpayer without Business Asset Disposal Relief – would accrue £108k in Capital Gains Tax (24%)
Before April 2026, the same shareholder can take advantage of the outgoing 14% Business Asset Disposal Relief rate and see the amount of tax payable reduced to £63k. This represents a massive saving of £45k. For the same transaction.
From April 2026, that rate increases to 18%, and the same shareholder would pay £81k, reducing this saving to £27k.
Advantages of a members’ voluntary liquidation
Beyond the tax savings inherent to an MVL, there are a couple more advantages to choosing this route when closing your business.
Many find that it’s one of the easiest methods to extract the value in a company and convert it into cash. Others enjoy the savings made on audit and accounting fees.
In the majority of cases, the savings had by opting for a members’ voluntary liquidation are more than enough to cover the cost of the entire MVL process.
Disadvantages of a members’ voluntary liquidation
Given the tax benefits available, those that enjoy these savings are held to some strict rules in the future.
Should a director be found to start a similar business in the two years following an MVL, they can be liable for the original distribution being reclassified as income rather than capital. This back-dated tax payment can see directors charged at rates of up to 45%.
This is done with the intention to stop the practice of ‘phoenixing’, in which companies can close and reopen in order to avoid debts.
Because of this, such measures are included as part of the Targeted Anti-avoidance Rule (TAAR). As part of TAAR, anyone hoping to have their distributions classed as capital must be seen to have a legitimate reason for closure. Acceptable reasons include retirement, restructuring, or simply the end of the company’s expected lifespan (such as transient businesses built around a specific event).
Does an MVL make sense for my business?
“The distributions in question should generally total more than £25k for a members’ voluntary liquidation to be a practical solution”, says Westoby.
“It’s also worth remembering that Business Asset Disposal Relief has a £1m lifetime limit. If you’ve already utilised this scheme before, you will need to deduct the amount you have already used from this £1m allowance to see how much you have left.”
Thinking of closing your company?
There are myriad ways in which to close a business, with each providing their own pros and cons. As such, it’s highly recommended that anyone considering closure should speak to a closure specialist to weigh up their options.
Luckily, Forbes Burton offer free consultations that allow business owners to discover the best solutions available to them.
Call today on 0800 975 0380 or email advice@forbesburton.com for your free, no-obligation consultation with one of our expert advisers.
