If you’ve been following UK business news over the last year, you’ll know there’s been a remarkable rise in voluntary liquidations, the highest we’ve seen since the pandemic. While insolvency statistics often climb during periods of economic stress, this latest spike isn’t purely down to businesses struggling. This time, tax policy is a big part of the story. Specifically, changes to Capital Gains Tax reliefs have prompted many directors, especially those with profitable, solvent companies, to act sooner rather than later. Here at Simple Liquidation, we’ve been speaking to more entrepreneurs than ever who are keen to close down now, not because they have to, but because it makes financial sense to do so before new rules bite.
The Link Between CGT Relief and Voluntary Liquidations
Capital Gains Tax applies when you sell or dispose of certain assets, including shares in your own company. For years, UK entrepreneurs have been able to benefit from Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief), reducing the CGT rate to as low as 10% on qualifying gains up to a lifetime limit.
When HM Treasury signals that this relief might be tightened, for example, by lowering the lifetime limit, increasing the tax rate, or narrowing the eligibility criteria, directors take notice. The fear is simple. If you wait too long, you could end up paying far more tax when you eventually wind up your business and withdraw the profits.
That’s exactly what happened in the 2024–25 tax year.
Why We Saw a Surge in 2024–25
The government hinted at, and later confirmed, adjustments to CGT relief rules. Even before the details were finalised, the speculation alone was enough to trigger action. We saw three key behaviours from entrepreneurs:
- Bringing forward planned retirements or exits – directors who had thought about closing in “a few years” decided to do it now.
- Accelerating group restructuring – business owners simplified company structures and liquidated dormant subsidiaries to release funds before the relief terms changed.
- Closing solvent companies at peak value – those with strong reserves realised it was better to take advantage of a lower CGT rate while it was still available.
As a result, Members’ Voluntary Liquidations (MVLs), the formal process for winding up a solvent company, rose sharply.
What’s an MVL and Why Is It Tax Efficient?
An MVL is designed for solvent companies where the directors can declare that all debts can be paid within 12 months. Instead of taking money out through salary or dividends (both of which have their own tax burdens), an MVL allows you to distribute profits as capital. This means CGT applies, and if you qualify for Business Asset Disposal Relief, that CGT rate can be significantly reduced.
For directors with large retained profits, the savings can be substantial. Even a small percentage difference in tax can translate to tens of thousands of pounds in your pocket.
Why Timing Matters
In tax planning, timing is everything. If reliefs are about to change, the difference between acting this tax year and waiting until the next can be costly.
We’ve seen directors who delayed their decision, only to find that rule changes wiped out part of their tax advantage. On the other hand, those who moved quickly were able to:
- Secure the lower CGT rate.
- Plan their personal finances with greater certainty.
- Exit the company on their own terms rather than under pressure later.
The Emotional Side of Voluntary Liquidations
While MVLs are financially motivated, there’s always an emotional element. Many of the entrepreneurs we help have built their businesses over decades. Even if the closure is purely strategic, it can still feel like the end of an era. That’s why our role at Simple Liquidation isn’t just about the legal paperwork. We handle the process with sensitivity, ensuring directors have clarity at every step. We take care of the technical details so you can focus on your future, whether that’s retirement, a new venture, or simply enjoying more free time.
Our Perspective at Simple Liquidation
We are not an intermediary or a broker. We are licensed insolvency practitioners, Jamie Playford FABRP MIPA and Alex Dunton MABRP supported by a dedicated, experienced team. Over the past 30 years, we’ve guided hundreds of solvent and insolvent companies through liquidation.
For MVLs, our focus is on delivering a cost-effective, compliant, and efficient process. Directors are often concerned about costs, rightly so, but in most cases, our fees are more than offset by the tax savings achieved through proper timing and structuring.
We’ve dealt with companies in every sector, from tech start-ups to family-run retailers. Our clients trust us because we explain the options in plain English, not legal jargon, and because we manage the entire process ourselves, no outsourcing, no middlemen.
How to Decide if an MVL is Right for You
An MVL can be a great option if:
- Your company is solvent and has retained profits above £25,000.
- You qualify for Business Asset Disposal Relief (or similar tax reliefs).
- You are ready to close the business for strategic or personal reasons.
- You want to maximise the after-tax amount you take from the company.
However, it’s not always the right choice. If your business is still growing or if you expect significant future gains, it may be worth holding on, but only if tax changes won’t erode your eventual returns.
That’s why early advice is critical. A quick conversation with us could clarify whether it’s worth acting now or waiting.
Avoiding the Pitfalls
We’ve seen directors rush into liquidation without fully understanding the implications. Common mistakes include:
- Not settling all outstanding liabilities before the MVL starts.
- Overlooking the director’s loans or shareholder agreements.
- Failing to plan for personal tax implications post-liquidation.
At Simple Liquidation, part of our job is to identify these issues before they become problems. We work closely with your accountant to ensure everything is lined up for a smooth process.
Looking Ahead: Will This Trend Continue?
The surge in MVLs in 2024–25 was driven largely by tax changes, but it’s not a one-off phenomenon. Tax policy shifts regularly, and whenever there’s a hint of higher rates or reduced relief, entrepreneurs will look for ways to protect their returns.
We expect MVL activity to remain strong into 2025–26, especially if further adjustments to CGT or dividend tax are proposed. For directors, the lesson is clear. Keep one eye on the tax landscape and be ready to act if conditions change.
Final Thoughts
The rise in entrepreneurial liquidations isn’t just a statistic; it’s a reflection of how tax policy influences business decisions at the highest level. If you’re a director of a solvent company, and you’re thinking about winding down, the timing of your liquidation can have a major impact on the amount you keep. At Simple Liquidation, we combine technical expertise with straightforward, honest advice. We’ll tell you if now is the right time to liquidate, and we’ll guide you through the process from start to finish if it is. If you’d like to explore whether a Members’ Voluntary Liquidation could benefit you before any future tax changes, get in touch today for a confidential, no-obligation discussion.
Secure your financial future and do it the simple way with Simple Liquidation.
