The new Labour government sparked a wave of economic speculation, particularly surrounding potential changes to the Capital Gains Tax (CGT) in the budget. This anticipation precipitated a significant surge in Members Voluntary Liquidations (MVLs) as business owners and shareholders looked to safeguard their financial interests.

MVLs are a formal process whereby solvent companies are voluntarily wound up by their shareholders. This process allows shareholders to extract the company’s remaining assets in a tax-efficient manner. MVLs are typically employed when a company has reached the end of its useful life or when its shareholders wish to realise their investments.

The election of the Labour government brought with it a promise of numerous fiscal reforms, chief among them being the potential overhaul of the CGT.

CGT was a significant target for the Chancellor in the Autumn Budget – with an immediate rise put in place for both the basic and higher rate of CGT.

The basic rate paid by basic rate taxpayers rose immediately to 18 per cent – up from 10 per cent. Meanwhile, the higher rate has risen to 24 per cent from 20 per cent. The existing rates of CGT for residential property sales remain unchanged.

The prospect of increased CGT rates was particularly concerning for business owners and investors. Higher taxation on gains could drastically reduce the net returns on investments, making it less attractive to hold onto assets. This potential fiscal tightening has led many to reconsider their current financial strategies and seek ways to mitigate the impact.

In response to these changes, we have seen a marked increase in the number of companies opting for MVLs. By liquidating their companies now, shareholders can take advantage of the current, more favourable tax regime. This allows them to extract their wealth at the existing CGT rates, thus preserving a greater portion of their capital.

The surge in MVLs highlights the broader economic anxiety that accompanies significant political shifts. While the Labour government’s policies aim to promote fairness and economic stability, the immediate response from the business community underscores the delicate balance that must be struck in fiscal policymaking.

Read our latest update on new tax liabilities here which explores how you can protect your wealth and prepare for upcoming changes ahead of the new tax season.