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With significant changes to Business Asset Disposal Relief (BADR) on the horizon, Scottish business owners contemplating winding up their companies should act soon to avoid higher tax liabilities.
BADR Rate Increases: What’s Changing?
BADR, formerly known as Entrepreneurs’ Relief, allows business owners to pay a reduced rate of Capital Gains Tax (CGT) when disposing of qualifying business assets. However, from 6 April 2026, the BADR rate will rise to 18%, up from the current 14%, and significantly higher than the original 10% rate that applied before April 2025.
Why Members’ Voluntary Liquidation is a Smart Exit Strategy?
A Members’ Voluntary Liquidation (MVL) is a formal process for closing a solvent company. It allows directors and shareholders to extract retained profits in a tax-efficient manner, with distributions treated as capital rather than income. This makes them eligible for CGT rates and potentially BADR.
For Scottish businesses, MVLs have surged in popularity, especially in light of the upcoming tax changes. In fact, MVLs accounted for over half of all company liquidations in Scotland in late 2024, as directors moved to lock in lower tax rates before the increases take effect.
Key Reasons to Enter MVL Now
- Tax Efficiency: Distributions are taxed as capital, not income, and may qualify for BADR.
- Avoid Higher CGT: Acting before April 2026 could make significant tax savings compared to post-2026 rates.
- Clean Exit: MVL provides a structured, low-risk way to close a company, especially for retiring directors or those restructuring.
- Time-Sensitive: The process requires a Declaration of Solvency and must be completed within 12 months, so early planning is essential.
Conclusion
With BADR becoming less generous from April 2026, Scottish business owners considering winding up should not delay. A well-timed MVL can offer substantial tax savings and a clean, efficient exit. Professional advice is crucial to ensure eligibility and to navigate the process effectively.