Entrepreneurs Relief in Members Voluntary Liquidation
Reducing your Tax Rate to 10%
If you have run a successful company and have a built up a large pot of cash that you now wish to extract from the company, you will want to ensure that those funds are taken as tax efficiently as possible. Often the best way to do this is to place the Company into Members Voluntary Liquidation and for the money to be paid out to you by way of a Capital Distribution. If you qualify for Entrepreneurs Relief the tax rate charged will only be 10% which is far less than the tax rate that would be used if you were to take those funds as income via wages or dividends.
Briefly Entrepreneurs Relief is claimed on the disposal of business assets or shares in your personal company provided that you meet the relevant qualifying conditions for a one year period. For a company to be considered a personal company you must hold at least 5% of the ordinary share capital and those shares must give you at least 5% of the voting rights in the Company.
The main qualifying condition is that you must have owned the business directly or it must have been owend by a partnership in which you are a member. The qualifying conditions are slightly different depending on whether you have disposed of your business as a whole or you are disposing of the assets after the cessation of trade. The key difference is that if the business has ceased you essentially have three years in which to dispose of the assets.
The Company can then be placed into Members Voluntary Liquidation. The Liquidator will make a capital distribution to the shareholders and those shareholders should then make a claim on their personal tax return for the monies that are received, or the value of assets that are received, to be taxed at a rate of 10%.
A claim for Entrepreneur’s Relied will not effect your Annual Capital Allowance, which will further reduce the tax payable.
It is always best to discuss these matters with your accountant because it will him who will make the claim for you. However if you wish to discuss Entrepreneurs Relief or any aspect of Members Voluntary Liquidations with us please ring 01326 340 579 to speak to one of our Insolvency Practitioners.
Purnells have developed a guide to Members Voluntary Liquidations, which is available here, and should hopefully assist your understanding.