Members’ Voluntary Liquidation (MVL): A Tax-Efficient Exit for Solvent Business

Liquidation is often perceived as a decision of last resort for companies that can no longer meet their financial commitments.

However, unlike other types of liquidation, members’ voluntary liquidation (MVL) is only available to solvent companies.

In fact, an MVL can be a tax-efficient exit strategy for solvent businesses, enabling their directors and shareholders to benefit from favourable capital gains tax (CGT) provisions and, in some cases, further assistance through the business asset disposal relief (formerly known as entrepreneurs’ relief).

What is Members’ Voluntary Liquidation (MVL)?

Members’ Voluntary Liquidation (MVL) is a structured legal process that enables company directors to dissolve their solvent company and have the company removed from the Companies Register at Companies House.

An MVL may be a wise option if the directors of a company are all looking to exit, either for retirement or to go in a different direction vocationally, and the company has significant assets that need to be liquidated.

What is the process of an MVL?

To be eligible for an MVL, companies must meet certain criteria, including:

1. Be solvent and able to meet all financial obligations for 12 months. A declaration of solvency is required with financial proof to validate this declaration.
2. Have the agreement of the board of directors and a minimum of 75% of shareholders.
3. Conducted by a licensed IP (insolvency practitioner) who will take control of the company and ensure compliance with all legalities and liquidate for the benefit of the directors and company shareholders.

The liquidator, a licensed insolvency practitioner, will work with the directors to ensure that the company is eligible for an MVL and submit the declaration of solvency to Companies House.

The declaration of solvency is a serious matter, because if the company is not able to meet its financial obligations in closing, the MVL will not be able to proceed and the tax efficiencies of an MVL will be lost.

Once all financial obligations (including the HMRC) are met, the IP will liquidate all assets and distribute them to the directors and shareholders.

After three months of finalising these matters, the company will automatically be removed (struck off) from the Companies Register at Companies House.

That is, the company will cease to exist.

What are the tax benefits of a Members’ Voluntary Liquidation?

MVLs have such a strong appeal as an exit strategy to business owners wanting to close their solvent companies because of the potential tax benefits.

Under an MVL, the liquidated assets of a company are considered assets rather than income.

This means when it comes to paying tax on what is extracted from the liquidated business, directors and shareholders will pay capital gains tax (CGT) rather than the higher rate of income tax.

While the rates for CGT have increased in 2025, there’s still much to be gained by having the rewards reaped from your company taxed as CGT rather than income tax.

In addition to the benefits of CGT, in some cases with an MVL, further tax efficiencies can be found through business asset disposal relief.

This was formerly known as entrepreneurs’ relief.

Under this scheme, eligible company directors could have the new CGT rate reduced to 14%, resulting in considerable tax savings.

While members’ voluntary liquidation (MVL) is a tax-efficient exit strategy for solvent businesses, there are legalities to be considered including the Tax Targeted Anti-Avoidance Rule (TAAR).

This legislation is designed to ensure company directors are not closing companies solely for avoiding or minimising income tax obligations, only to then open another company or engage with another company in the same field.

The reasons for closing a solvent business and the implications of business plans post company closure are all matters to be considered and discussed with your chosen insolvency practitioner to ensure an MVL is the correct exit strategy for your business.

How can Irwin Insolvency help your business with an MVL?

If you’re considering exit strategies for your business, it’s imperative to understand the options available and the eligibility criteria, legal implications, and specific timelines involved for optimising CGT and business asset disposal relief as you close your business.

With legislative changes taking effect in 2025, it’s even more prudent to have expert guidance on whether an MVL is the correct choice for your business closure.

Contact the experienced team at Irwin Insolvency today for professional, tailored advice and assistance for the closure of your solvent business.