This site uses cookies to improve your browsing experience and analyse use of our website. By clicking ‘I accept’ you agree and consent to our use of cookies. You can find out more about our cookies here. Find out more

CGT reforms are in the Government’s crosshairs – is now the time for MVLs?

CGT reforms are in the Government’s crosshairs – is now the time for MVLs?

Neil Dingley

During the past few months, there has been plenty of speculation about what the Chancellor will include in his Budget on 3 March 2021. If what people are saying about the potential reforms to Capital Gains Tax (CGT) is true, and you are considering retiring or closing down your solvent company, now is the time to act. We can help, by putting in place a solvent liquidation (MVL), which is the only way to return funds of more than £25,000 to shareholders.
 
On 14 July 2020, the Chancellor requested the Office of Tax Simplification (OTS) to undertake a review of CGT in relation to individuals and smaller businesses. In response, the OTS has published an online survey and a call for evidence document seeking views and opinions from individuals and businesses, as well as professional advisors and representative bodies. The consultation closed on 9 November 2020. The result of the consultation was the production of two reports. The first focuses on the policy, design, and principles of CGT, was published recently. The second will be published later this year.  According to the first report:
  • In 2017/18, £8.3bn was collected in CGT from 265,000 individuals, compared with £180bn collected from 31.2 million individuals in Income Tax.
  • There are presently four different rates of CGT, all of which are lower than the equivalent standard rates of Income Tax.
The first report recommends:
  • Consideration be given to the alignment of CGT and Income Tax rates
  • A reduction to the annual CGT exemption
  • Replacing Business Asset Disposal Relief with an alternative relief focused more on retirement
  • The abolition of Investors Relief.
Whilst there may be a degree of inevitability in the recommendations, they are likely to have implications for business owners who are considering closing down their companies and repatriating the assets to the shareholders via a Members Voluntary Liquidation (MVL).
 
An MVL remains the most effective means of maximising the return to shareholders by utilising the annual CGT allowance and, if appropriate, applying for Business Asset Disposal Relief. For further advice, please contact your nearest Moore adviser.