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Tax and finance

How to close a company tax-efficiently using an MVL

An MVL can offer significant tax advantages over dissolution when closing a solvent company. Here is how the process works and what directors need to consider.

Published by the Mackay Goodwin UK team

Two advisers listening to a business owner across a meeting table

When a solvent company has served its purpose and the directors wish to extract the accumulated value, a Members’ Voluntary Liquidation (MVL) is often the most tax-efficient route available. This article explains the process, the potential tax benefits and the key considerations for directors and shareholders.

What is an MVL?

A Members’ Voluntary Liquidation is a formal insolvency process under the Insolvency Act 1986 for winding up a solvent company. The company must be able to pay all its debts in full, with interest, within 12 months. A licensed insolvency practitioner is appointed as liquidator to manage the process.

Why is an MVL tax-efficient?

The key advantage of an MVL is that distributions to shareholders are treated as capital, not income. This is significant because:

  • Capital Gains Tax (CGT) rates are generally lower than income tax rates on dividends
  • Business Asset Disposal Relief (BADR) may apply, reducing the rate of CGT to 18% (for disposals from 6 April 2026) on qualifying gains up to the lifetime limit (currently £1 million)
  • By contrast, if the company is simply dissolved and the remaining assets exceed £25,000, HMRC will treat the distributions as income, taxable at dividend rates of up to 39.35%

Who qualifies for BADR?

To qualify for Business Asset Disposal Relief, shareholders must generally meet the following conditions:

  • They must have held at least 5% of the company’s ordinary share capital
  • The company must have been a trading company for at least two years before the liquidation
  • The shareholder must have been an officer or employee of the company for at least two years

These conditions are subject to change and each shareholder’s position is different. Independent tax advice is essential.

The MVL process

  1. Directors hold a board meeting and confirm the company is solvent
  2. At least one director makes a Declaration of Solvency
  3. A general meeting is called, and 75% of shareholders must vote to wind up
  4. The licensed insolvency practitioner is appointed as liquidator
  5. The liquidator realises all assets, settles creditor claims and deals with HMRC
  6. Assets are distributed to shareholders
  7. The company is dissolved at Companies House

What does an MVL cost?

Professional fees for an MVL depend on the complexity of the estate, but typically start from around £2,000 to £3,000 plus VAT. In many cases the potential tax savings outweigh the cost of the process, but this depends on each shareholder’s circumstances.

Important disclaimer

Mackay Goodwin are licensed insolvency practitioners, not tax advisers. The tax efficiency of an MVL depends on each shareholder’s individual circumstances. We strongly recommend that all shareholders take independent tax advice from a qualified accountant or tax adviser before proceeding.

Next steps

Contact Mackay Goodwin for a free, confidential initial consultation. We will assess your company’s position, explain the MVL process in detail and work alongside your tax adviser to help you work towards the best outcome available for your circumstances.

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