The assets are sold and the proceeds of sale are used to discharge creditors in full and to cover the liquidator’s costs. All surplus funds are then returned to Shareholders in a tax efficient manner.
By definition, a solvent company is defined as being able to pay all of its debts and the value of its assets exceeds the sum of its liabilities.
One of the main tax advantages of a Members Voluntary Liquidation is that taxation is applied as if distributions were of capital rather than an income nature. Therefore, capital distributions should be subject to a lesser tax than if the funds were extracted as dividends outside of an MVL procedure.
Since the introduction of the Extra- Statutory Concessions Order 2012 any distribution to Shareholders when closing down a solvent business that has over £25,000 to make in shareholder distributions, is treated as income for tax purposes unless a Members Voluntary Arrangement is used.
In most cases, the Shareholders of trading companies meet the criteria for entrepreneur’s relief which means that capital gains are only charged at 10% instead of 18% provided the gains are less than £10 million.
Fortis are not tax advisors but will work with your tax advisor/ accountant to make sure that you are taking advantage of all reliefs available to you. Your accountant should be able to provide further information on the tax benefits associated with Entrepreneurs’ Relief. Or you can read the Government information on it.
If you wish to discuss the MVL process in more detail then please contact us for further guidance.