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How to close a limited company without paying tax

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Finding the most tax efficient method of closing a company is vital if you’re to extract the highest value, and it’s good to know that there are procedures and tax reliefs 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. So how can you close the business in the most tax-efficient manner?

The two main methods of closing down a solvent limited company are voluntary strike off and Members’ Voluntary Liquidation (MVL). Which might be the most tax-efficient for your business? 

Voluntary strike-off

Voluntarily striking off a company can offer tax advantages, but whether this is the most appropriate option depends on the amount of share capital that will be distributed amongst the shareholders.

Share capital under £25,000 is liable to Capital Gains Tax (CGT), and so 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.

Specialist assistance for tax-efficient company closure

Amounts above the £25,000 limit are treated as income when a limited company closes down 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.

Members’ Voluntary Liquidation

MVL is a common and popular method to close down a limited company, and can offer significant benefits from a tax perspective. Again, you don’t pay tax up to the amount of your annual tax free allowance, and can also offset business losses against a gain to reduce the amount of tax ultimately paid.

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 10% 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 importance of tax-efficiency at this time. 

So what are the eligibility requirements to claim Business Asset Disposal Relief?

Eligibility criteria for Business Asset Disposal Relief

You must meet the eligibility requirements for Business Asset Disposal Relief (which is a tax relief available to individuals rather than businesses) 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, and 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. 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.

Shaun Barton
Director
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