MVL stands for Members’ Voluntary Liquidation. It is a process used in the UK to close down a solvent company and distribute its assets to its shareholders. MVL is also known as a solvent liquidation or a voluntary winding-up.
The MVL process is initiated by the company’s directors who must make a declaration of solvency. This declaration states that the company is able to pay its debts in full within 12 months, and that it will be able to meet all of its other obligations.
Once the declaration of solvency has been made, a meeting of shareholders is held to pass a special resolution to wind up the company. A liquidator is then appointed to oversee the process of collecting and distributing the company’s assets. The liquidator will also deal with any outstanding debts, such as taxes or creditor claims.
There are several tax benefits to doing a Members’ Voluntary Liquidation (MVL) in the UK.
Firstly, any distributions made to shareholders as part of the MVL process are treated as capital rather than income. This means that they may be subject to lower rates of tax. For example, if the distribution is treated as a capital gain, it may be subject to capital gains tax (CGT) rather than income tax. CGT rates are generally lower than income tax rates, and individuals have an annual CGT allowance that can be used to offset gains.
Secondly, if the company has any surplus funds or assets that are distributed as part of the MVL, these may be eligible for Entrepreneur’s Relief (ER). ER is a tax relief that can reduce the rate of CGT on qualifying assets to 10%, subject to certain conditions. To be eligible for ER, the individual must have owned the shares for at least two years, and the company must be a trading company or the holding company of a trading group.
Finally, by using an MVL to close down a solvent company, the directors and shareholders may be able to reduce the rates of certain taxes that would otherwise be payable on the company’s assets. For example, if the company had retained earnings that were not needed for its business, these may be subject to corporation tax or income tax if distributed in a different way. However, by using an MVL, the shareholders may be able to receive these funds as a capital distribution, which may be subject to lower rates of tax.
It’s important to note that the tax benefits of an MVL will depend on the individual circumstances of the company and its shareholders, and that professional tax advice should always be sought before proceeding with an MVL.
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