Succession and exit planning – how MVLs offer a tax-efficient route

Succession and exit planning are critical stages in the lifecycle of any business. Whether an owner is retiring, stepping back or simply closing a chapter, choosing the right strategy to exit a business can have significant financial and legal implications.

Whether the exit involves a sale of the business or just a winding down and sale of assets, the end result is often a company with significant asset value which needs to be passed to the shareholders.

In these situations, a Members Voluntary Liquidation (MVL) can offer a structured, tax-efficient way to extract value from a solvent company.

What is an MVL?

An MVL is a formal liquidation process that enables business owners to close a solvent company through a proactive and well-structured approach. Once the decision is made, control of the company is passed to a liquidator whose role is to:

• Take control of all the assets of the company
• Ascertain and settle any liabilities
• Make sure all HMRC matters are finalised and tax paid
• Return surplus capital to shareholders. This can either be in cash or by transferring an asset, typically a property, to shareholders –

Once the liquidation is completed the company is then dissolved.

The MVL process

Getting a company into MVL is quite simple:

• The directors make a statutory declaration of solvency – that the company can pay all of its liabilities within no more than 12 months
• Shareholders then pass resolutions to put the company into liquidation and appoint liquidators

The liquidation is then publicised:

• The appointment of liquidators and the declaration of solvency are filed at Companies House
• Advertisements are placed in the London Gazette

Once all liabilities are ascertained and paid and assets distributed, the liquidators file a final report at Companies House which triggers dissolution.

Why would you need an MVL?

An MVL provides a structured, tax-efficient way for business owners to extract value from a solvent company when planning succession or exit. It ensures assets are distributed in a controlled manner while minimising tax exposure.Distributions from a liquidation are treated as capital rather than income in the hands of recipients. Tax on capital receipts are lower than on income.

This discrepancy between capital and income was narrowed in Rachel Reeves’ 2024 autumn statement – the capital gains tax rates were increased for disposals after 30 October 2024:

More than that, the rates for assets subject to business asset disposal relief (BADR) increased from 10% to 14% from 6 April 2025 and 18% from 6 April 2026.  Despite this (and at least for the time being) there is usually still a significant gap between tax on capital receipts and tax on income at the shareholders marginal tax rate.

Another reason for choosing an MVL may be the additional comfort from following the statutory process, including the specific rules applying to liquidators when they are ascertaining and paying creditors, if the directors cannot be entirely certain about the extent of potential claimants.

Preparing for an MVL

A company can be put into MVL at any time after its directors have made a statutory declaration of solvency but it is best to tidy down the balance sheet as much as possible beforehand to minimise costs. This means realising the assets, paying all the creditors and getting the HMRC position fully up to date.

One thing that can cause issues in a liquidation is contingent creditors; for example any warranties that might have been given by the company when selling its business or assets. Liquidators are required to give notice to all persons that might have a claim, and that will include any buyers to whom the company has given a warranty.

Given that tax warranty periods can last for many years, it may be sensible to address this in the relevant contract, either by reducing or removing warranty provisions or by providing warranties from shareholders rather than the company, especially if liquidation will follow soon after the sale.

Anti-avoidance of tax

HMRC does look at MVLs and there are anti-avoidance provisions in place. These are targeted at the use of MVLs to disguise income as capital in order to gain a tax advantage.

A particular focus is on shareholders who either continue or soon recommence the business of the liquidating company in another entity. HMRC may then take the view that the distributions from the liquidation are taxable as income.

We can set out the rationale and basis of the proposed MVL and seek HMRC clearance in advance.

How we can help

Preparation is key to a timely and successful MVL. We like to get involved at the outset to see if an MVL is the optimal route and to plan the process to make sure it runs smoothly from beginning to end.

We can also navigate the anti-avoidance provisions and seek HMRC clearance in advance of the liquidation where appropriate.

Find out more about our restructuring team here.