Budget could create taxing times for owners cashing in

Chancellor Rachel Reeves will present the Government’s first Budget to Parliament on October 30 and has said Labour “will not increase taxes on working people”, which means no hikes to income tax rates, national insurance or VAT.

The party has also previously said it will not increase corporation tax either.

However, it is likely we will see tax rises in other areas with experts thinking that either increasing the general rate of capital gains tax (CGT) or reducing the availability of Business Asset Disposal Relief (BADR), could be possibilities.

As such, for business owners who may be considering retirement or winding up and extracting capital, now might be the time to accelerate those plans to lock in the current favourable tax rates.

A solvent liquidation, also known as a Member’s Voluntary Liquidation (MVL), is a regulated process dealt with by an insolvency practitioner to wind up the affairs of a solvent company.

The MVL process involves the company paying all creditors in full, before paying the balance of funds to shareholders.

The payment of these funds is subject to CGT but, coupled with the potential availability of BADR, the rate is reduced to 10 per cent on the first £1m of lifetime gains.

This is far lower than tax rates attached to withdrawing the same funds as dividends or salaries and at Simply Corporate we regularly assist directors to successfully complete MVLs and benefit from these lower rates.