Guest blog: Autumn Budget 2024 - How are Members’ Voluntary Liquidations changing?

01 November 2024

Chris Bristow, a corporate insolvency and business restructuring specialist at Real Business Rescue, part of Begbies Traynor Group, runs through the implications of the Autumn Budget on Members’ Voluntary Liquidations.

The future of Members’ Voluntary Liquidations has been the target of much uncertainty in the run-up to the Autumn Budget which took place on 30 October 2024. 

To plug a £22 billion black hole in the public’s finances by raising taxes, rather than imposing spending cuts, Capital Gains Tax and Business Asset Disposal Relief rates, both part and parcel of an MVL, have been subject to notable changes.

What the Autumn Budget means for solvent liquidations

The Chancellor of the Exchequer, Rachel Reeves, unveiled the first Labour Budget in 14 years, with notable changes to Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR) rates.

Capital Gains Tax – The lower rate of CGT has increased from 10% to 18% and the higher rate increased from 20% to 24%.

Clients planning a solvent liquidation must revise their estimated distributions as the change to Capital Gains Tax rates came into effect for disposals made on or after 30 October 2024.

Some Autumn Budget predictions across the sector expected the Labour government to go as far as to align Capital Gains Tax rates with Income Tax rates to raise an influx of tax, however, the Chancellor rightfully supported the need to encourage entrepreneurs to invest in their businesses.

A report conducted by the Office of Tax Simplification, commissioned by the previous government found that by aligning Capital Gains Tax rates with Income Tax rates, an additional £14 billion a year could be raised for the Exchequer. In reality, this move would defeat the purpose of an MVL and stifle the spirit of entrepreneurship.

The Chancellor championed CGT rates in the UK as the lowest compared to EU countries.

Business Asset Disposal Relief – Business Asset Disposal Relief will remain at 10% this financial year and rise to 14% in April 2025 and 18% in April 2026. The staggered increase is intended to help the government’s commitment to build a ‘predictable tax system’ and give the industry time to adjust to the changes.

BADR, formerly Entrepreneurs’ Relief, provides asset owners access to reduced Capital Gains Tax rates, providing conditions are met. BADR contributes to the overall appeal of an MVL as company directors can halve their CGT liability which makes way for a highly tax-efficient exit.

While there was much speculation that this Autumn Budget would see the end of BADR, or a mammoth reduction in appeal, MVLs remain desirable as BADR rates will see an overall and gradual increase of 8% by 2026.

What does this mean for the MVL market?

Although tax rises announced in the Autumn Budget downgrade the tax efficiency of MVLs, these changes have been anticipated since the change in government. Company directors ready to pursue a solvent liquidation should seize the grace period between the Autumn Budget and the new financial year before CGT rates available under BADR jump.  

As with any tax change, the turn of the financial year will ease the adjustment for company directors and insolvency practitioners alike.  Although the tax benefits of an MVL will be less generous come 6 April 2025, MVL appeal is expected to remain strong.  

To learn more about Real Business Rescue, visit https://www.realbusinessrescue.co.uk. For more information on Begbies Traynor, visit https://www.begbies-traynorgroup.com