As we all know, Labour won the general election on 4th July 2024, and it has been rumoured that there could be potential changes to Capital Gains Tax. Whilst at BRI we do not usually get involved in speculation or ‘ifs and buts’, but given there may be a potential change to the industry we have been in for 20+ years, we feel it is certainly worthwhile to talk about it.
What are the changes to capital gains tax for shareholders? In this insight, we provide an overview.
Solvent liquidations – Members’ Voluntary Liquidations (“MVLs”)
In brief, a solvent company can be described as one that has assets that outweigh the liabilities and can pay its debts as and when they fall due.
When a solvent company has come to the end of its useful life; whether that be because trading has ceased or shareholders are coming to retirement age and wish to stop, if there are sufficient assets in the company then a formal way of closing it down is an MVL.
An MVL is where a qualified Insolvency Practitioner is appointed as a liquidator and they realise the assets and then distribute the cash to the shareholders as per their shareholding, after all creditors have been paid in full.
Shareholders in an MVL
The distributions which the shareholders receive from an MVL will need to be declared to HMRC on their personal tax returns and is a capital distribution and therefore subject to capital gains tax, and not income tax.
If a shareholder qualifies for Business Asset Disposal Relief (formerly known as Entrepreneur’s Relief), then they may be entitled to receive a CGT rate of 10% up to the first £1m they receive during that tax year.
The Autumn Budget and Capital Gains Tax changes
As it has been rumoured that there could be potential changes to capital gains tax in the Autumn budget, this could, in turn, also mean changes for MVLs.
If the CGT rate is to increase or changes to Business Asset Disposal Relief are made, then this could mean a larger amount of tax shareholders pay in an MVL scenario, and possibly more in line with the dividend tax rate and therefore potentially reducing the incentive/benefit for a shareholder to place their company into an MVL process.
The Autumn Budget
The budget is set to be on 30th October 2024.
How can BRI help with capital gains tax in relation to the autumn budget?
If the speculation is true and there are to be changes to CGT, if you are looking to close down your solvent company, then a conversation with BRI may be the first step to potentially save you paying more tax.
It is to be noted that BRI are not tax experts, and we do not give tax advice, but given one of the main reasons for placing a company into an MVL is tax driven, it is certainly worthwhile for shareholders to obtain their own tax advice either prior or post a conversation with BRI. However, we will certainly be monitoring what Chancellor Rachel Reeves announces next month and how this might impact the outlook for clients.