What is the most tax efficient way to close a limited company?
Finding the most tax efficient method of closing down a solvent limited company is vital if you’re to extract the highest value, and it’s good to know that there are official processes and tax relief schemes available that can help you achieve your goals.
You can even close a limited company without paying tax – but only up to the limit of your annual tax-free allowance. There is, however, a tax relief scheme known as Business Asset Disposal Relief which can limit the rate of tax payable upon the closure of a solvent limited company. So how can you close the business in the most tax-efficient manner?
Voluntarily striking off a company can offer tax advantages, but whether this is the most appropriate option typically depends on the amount of share capital that is available to be distributed amongst the shareholders.
Share capital under £25,000 is liable to Capital Gains Tax (CGT), and therefore attracts a lower rate than if it was treated as income. But if you’re close to this threshold or are unsure how much share capital there will be, you need to seek further professional advice from a licensed insolvency practitioner to ensure you are taking out the profits of your company in the most cost-effective and tax-efficient way possible.
Specialist assistance for tax-efficient company closure
Amounts above the £25,000 limit are treated as income when a limited company closes down using the strike-off method, so if you’re looking to close your limited company without paying excessive tax, specialist guidance is crucial.
UK Liquidators offer free same-day consultations, and can determine the most appropriate way to close down your limited company. You can carry out a voluntary strike off yourself as a director - it’s an informal process, but initial guidance from a specialist will ensure you don’t overpay on tax.
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Members' Voluntary Liquidation (MVL) is a popular method to close down a limited company with significant assets, and can offer notable benefits from a tax perspective. This is because all funds distributed as part of an MVL are treated as capital gains rather than income and taxed accordingly.
Furthermore, you may also be able to claim Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) to further reduce your tax liability. This doesn’t necessarily mean you can close a limited company without paying tax, but it does offer a significantly reduced tax rate of capital gains tax if you’re eligible.
MVL requires the appointment of a licensed insolvency practitioner (IP), but entering this process can prove financially worthwhile when you consider the tax savings which can be made.
So what are the eligibility requirements to claim Business Asset Disposal Relief?
Concerned about National Living Wage and NI increases?
With the rates of both National Living Wage and employer National Insurance Contributions increasing in recent years, this additional cost of employing staff has added more pressure onto already squeezed cash flows. If you are worried about the impact this is having on your company's finances, talk to the experts at UK Liquidators. As licensed insolvency practitioners we can explain your options and help you plot a way forward. Call today on 0808 253 9878.
Eligibility criteria for Business Asset Disposal Relief
You must meet the eligibility requirements for Business Asset Disposal Relief for two years before the business closure date.
Eligibility criteria include:
Being an office holder of the company
Holding at least 5% of the share capital and 5% of voting rights at the time of asset disposal or sale
Not exceeding your lifetime limit of £1 million - this applies to capital gains; any gains above this threshold are subject to Capital Gains Tax at the full rate
UK Liquidators can offer further information and guidance on closing your limited company in the most tax-efficient manner, maximising your returns. We have more than 25 years’ experience of helping limited company directors to extract the maximum value from their business, and operate a network of offices throughout the UK. Please contact our partner-led team to arrange your free same-day consultation.
Jonathan Munnery
Insolvency & Restructuring Expert | 20+ Years Insolvency Experience
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
IPA Member MABRP Member IPA Regulated
“ Directors often wait too long before seeking advice. The earlier you call, the more options remain available to you — and the better the outcome for everyone involved. ”
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
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