Business Asset Disposal Relief might be available if you close your solvent company using a Members Voluntary Liquidation. But will the Chancellor abolish it?
When business owners decide to sell or wind-up their solvent company using a Members Voluntary Liquidation (MVL), they might be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). This has been an attractive and popular method of reducing the amount of Capital Gains Tax that must be paid on the sale of a company and/or its assets, from the standard rate to a 10% rate. It can save business owners many £000s.
In recent budgets there has usually been speculation that BADR will be scrapped – the March 2020 budget saw the relief capped at a lifetime limit of £1 million, for example. Against the background of the huge amount of money the Government has borrowed to fund the costs of Covid-19 come the inevitable concerns of tax rises and cost cuts to pay for it. Once again it is believed that Business Asset Disposal Relief might well be up for abolition – saving the Treasury c.£2.5billion per annum.
Will BADR be scrapped in the March 3rd 2021 Budget?
We will not know for sure until 3rd March, of course. The consensus is that it will not be, but that further reductions/restrictions will be applied. These might include one, some or all of the following:
- A minimum shareholding of 25%
- A minimum length of share ownership of 10 years
- A minimum age – 55? – for the relief to apply
Antony Batty states “Any tax savings under whatever amendments are made to BADR will most likely be hit by a reduction in Capital Gains Tax personal allowances and increases in the rates, which many analysts believe are almost certain to be implemented by the Chancellor.”
So, if you are a company owner/director and you are considering selling or winding-up your solvent company using a Members Voluntary Liquidation, now is the time to talk to us. Even if the budget does not scrap Business Asset Disposal Relief, further restrictions/reductions are likely.
Who qualifies for Business Asset Disposal Relief?
There are many reasons why owners/directors decide to sell/wind-up their solvent companies, including:
- company was set up for a specific purpose or contract, now completed.
- The business has become outdated and is now past its useful life.
- The directors/owners wish to retire and there is no succession plan in place.
To qualify for BADR:
- The Relief allowance is generally only available via a Members Voluntary Liquidation process
- You must be a director, partner or employee with more than a 5% shareholding in the company.
- The business must have been a trading company for the last 24 months.
- Speak to your accountant for specialist tax advice as they will know your personal financial circumstances.
Antony Batty advises “Only a licensed insolvency practitioner, such as Antony Batty & Company, can be appointed as a liquidator for an MVL”
. In general terms, the starting point for proceedings with an MVL is that the company must:
- have completed its business and ceased to trade.
- anticipate having surplus funds left once all creditors have been paid.
- have deregistered or be in the process of deregistering for VAT, PAYE/NIC and Corporation Tax
- have filed or be in the process of completing and filing accounts and returns up to the date the business ceased trading.
- be able to pay any unpaid creditors within 12 months of the start of the MVL.
Our advice is “If you are thinking about closing down or winding-up your solvent company and want to avoid the likely reductions and restrictions on BADR that we anticipate that the March 3rd 2021 budget will impose, then the sooner you talk to us the better.”
Antony Batty & Co Bournemouth Office Contact-: Elaine Wilkins 07887 750222
Address-:Bourne House 23 Hinton Road Bournemouth BH1 2EF.