The director of a group of solvent companies approached Bailey Ahmad when he decided to sell the groups multiple business interests with a view to his retirement. He sought our help to extract the value of his shares in the group (around £550,000) in the most tax efficient manner possible.
We recommended placing all three companies into solvent liquidation (known as Members Voluntary Liquidation or MVL) with a view to making a capital distribution to the shareholder, which would in this case qualify for Entrepreneurs Relief. The rate of tax charged on the capital distribution would therefore be only 10%. Following the withdrawal of Extra Statutory Concession c16 earlier this year (concerning distributions to shareholders when a company is struck off the register at Companies House), in the absence of a MVL, any distributions to shareholders exceeding £25,000 would be treated as income rather than a capital distribution.
A capital distribution carries a substantially lower tax charge for the shareholders, when compared to tax charged on income, especially if Entrepreneurs Relief can be claimed.
In cases where distributions to shareholders are made via a MVL, the £25,000 restriction on capital distributions doesnt apply, potentially saving shareholders considerable amounts of tax on larger distributions.
We worked closely with the groups accountant to wind up the companies efficiently, dealing with all closure matters appropriately and ensuring that the distribution of surplus cash to the shareholder was made in a timely manner.
Bailey Ahmad offers expert advice on Members Voluntary Liquidation and related issues. If you or your clients would like more information, please call Paul Bailey or Tom Ahmad on 020 8662 6070 for a confidential chat or a free consultation.
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