Shortly before Christmas, the Government published a consultation document outlining its intention to make changes to the taxation of distributions to shareholder individuals made through a Members Voluntary Liquidation (MVL). 

The changes proposed would see much tighter restrictions on the ability of shareholders in close companies to use the MVL process to extract funds in a tax efficient manner. 

A number of scenarios are being targeted, including where profits are allowed to accumulate in a company, which are then extracted in capital form by way of an MVL.  Also, where trade is carried on in a company (e.g. property development) and when the project is finished the profits are taken out as a capital distribution through an MVL.

The outcome of the proposed changes may mean that some distributions that would currently be subject to capital gains tax (with the potential availability of entrepreneurs’ relief) will going forward be subject to income tax and the increasing dividend tax rates.  

It is likely that changes to the rules will come into effect from April 2016.  

Time is therefore short to distribute funds on MVLs already in progress or to distribute funds on any new MVLs, under the current tax rules. 

If you wish to discuss the potential impact of these changes or are considering taking any action prior to April 2016 please contact Andrew Wilson or Jon Kicks on 01788 539000.