For companies with £25k+ in retained profits, a Members’ Voluntary Liquidation (MVL) remains one of the most effective ways to extract value. And, for those who qualify, Business Asset Disposal Relief (BADR) still offers significantly lower capital gains tax (CGT) than the dividend route.
But the tax advantage is narrowing again soon, with the BADR rate rising again in April 2026 to 18%. That 4% jump can make a meaningful difference in net proceeds, especially for clients sitting on six-figure reserves. This is a closing window that deserves timely action.
Simple in structure. Powerful in outcome
The biggest draw of an MVL is that it converts retained profits into capital, allowing shareholders to access lower CGT rates (provided they meet the eligibility requirements).
It also avoids the risks associated with informal strike-offs, offers clean closure with full statutory compliance, and delivers significant tax advantages.
The clients who are ideal for this will likely spring to mind immediately. They’ve stopped trading. They’ve moved on to a new venture. The company is sitting on cash and, for all intents and purposes, is no longer needed.
Why timing now counts
BADR now sits at a CGT rate of 14% and will increase to 18% from April 2026. While the lifetime allowance will remain at £1 million, the reduction in generosity means timing matters more than ever.
Here’s a simple comparison on £250,000 of retained profits:
Dividend route (39.35%)
- Tax: £98,375
- Net proceeds: £151,625
MVL with BADR at 14%
- Tax: £35,000
- Net proceeds: £215,000
MVL with BADR at 18%
- Tax: £45,000
- Net proceeds: £205,000
The £10,000 difference between 14% and 18% is reason enough to bring forward the liquidation timeline. For higher amounts, the impact multiplies quickly.
Is your client eligible?
To qualify for an MVL, the shareholder must meet the following conditions for at least two years prior to the date of disposal (typically the final distribution date):
- Be an officer or employee of the company
- Hold at least 5% of ordinary share capital and voting rights
- Have owned the shares for at least two years
- The company must be a trading company (or the holding company of a trading group)
- It must not have transitioned to investment activity post-trade
In practice, most owner-directors of limited companies will tick these boxes. But late-stage dilution, role changes, or letting the company go passive after trading can trip up an otherwise simple case.
When MVL is the best route
In most cases, you’ll know instinctively when MVL is the right recommendation. The business is no longer active. The client isn’t looking to sell as a going concern. There’s at least £25,000 left in retained profits. They want to draw the funds and move on.
At that point, it’s a matter of ensuring they don’t default to dividends out of habit. Or delay too long and lose the 14% rate.
An MVL suits:
- Retiring directors with a solvent company,
- Contractors switching to PAYE post-IR35, or
- Group restructures where dormant subsidiaries have residual value.
For retained profits above £25,000, the MVL route nearly always wins out over striking off and dividend extraction, even after the insolvency practitioner’s fees.
Your role in the process
While a licensed insolvency practitioner is legally required to conduct the MVL, the accountant’s role is central – especially at the start. Pre-liquidation planning includes:
- Preparing final management accounts
- Advising on any last dividends or director salary payments
- Ensuring liabilities are settled or quantified
- Confirming BADR eligibility
- Identifying any quirks in share structure or history
It’s also your opportunity to shape the timeline. The date of final distribution matters as it determines the applicable BADR rate. Coordinating the declaration of solvency, asset realisation, and distribution scheduling with the client’s insolvency practitioner could make the difference between a 14% and an 18% CGT bill. That timing sensitivity puts you in a critical position to maximise your client’s return.
Once the client signs the declaration of solvency, the insolvency practitioner steps in. From there, capital distributions can often be made within weeks. Full closure typically takes 6–12 months, depending on HMRC’s clearance process.
Avoidable pitfalls
BADR can unravel if any of the core eligibility conditions are missed. Common issues include:
- Loss of officer status, caused by resigning too early,
- Shareholding dilution, falling below 5% due to reallocation,
- Long periods of inactivity causing the company to drift from trading status, and
- Poor timing, with final distributions made after the rate change.
You’ll often be the only person with full visibility on these risks. That makes proactive planning essential, particularly in cases where the client has scaled back their involvement without formally resigning, or where past restructures have altered shareholdings.
Don’t assume BADR applies just because it did in the past. A quick eligibility review avoids unexpected outcomes and gives clients clear direction when they need it most.
Act now to lock in 14%
While 18% is still better than dividend tax, the difference between acting now and waiting until 2026 could be significant. For many clients, this might be their last opportunity to extract capital at 14%.
If you’ve got clients with dormant companies, or you’ve been meaning to raise this option with long-term contractors or directors, now’s the moment. Waiting six months could cost them thousands unnecessarily.
Our team works directly with UK accountants to deliver fast, compliant, tax-efficient solvent liquidations. We offer fixed-fee pricing, upfront guidance, and a professional handover at every stage.
Marco Piacquadio is Director at FTS Recovery. If you’d like to talk through a client case, or simply confirm how the BADR timeline impacts your current portfolios, contact our licensed insolvency practitioners for a free consultation by calling 01908 754666 or emailing [email protected]
