A solvent liquidation can also be referred to as a Members’ Voluntary Liquidation.
In order to undertake a Members’ Voluntary Liquidation (MVL), a company must be able to pay all of its debts in full, together with statutory interest. Once all of the debts of the company have been paid the residual assets can be distributed to the shareholders.
Depending on the circumstances any money received by shareholders can benefit from a reduced rate of tax, sometimes as low as 10%. This clearly offers a significant advantage over dividends taxed at normal income tax rates.
There are a number of reasons why a MVL procedure might be appropriate:
- Retirement – you want to close down a company and extract the assets tax efficiently.
- You have sold the business and assets of the company and are left with cash that needs to be extracted in a tax efficient manner.
- It can enable a tax efficient means of splitting off one or more distinct parts of a business – known as a Section 110 reconstruction find out more.
- The limited company has come to the end of its useful life and is no longer required but has assets remaining within it.
- Group rationalisation – you may have surplus to requirement companies in your group, that have associated and non-necessary administration costs, which need to be closed down.
More details regarding MVLs can be found on our briefing note available here for you to download.