UK Limited Company closure & MVL: 2026/27
UK Limited Company Closure & MVL (2026/27): 18% BADR Exit
Complete guide to formally closing a UK limited company in 2026/27. Members' Voluntary Liquidation (MVL) under Part 4 Insolvency Act 1986 distributes retained profits as CAPITAL not income, taxed at Business Asset Disposal Relief rate 18% (rising from 14% in 2025/26, 10% pre-April-2025) up to £1,000,000 lifetime cap. Under £25,000 retained profit: cheap informal strike-off via DS01 (£33). Above £25k: MVL the only route for capital treatment. TAAR Section 396B ITTOIA 2005 phoenix rule restricts re-trading within 2 years. 4 worked scenarios from £30k to £600k retained profit comparing MVL net vs dividend net.
2026/27 closure key figures
BADR rate
18%
CGT on MVL distributions up to £1m lifetime
BADR lifetime cap
£1,000,000
Cut from £10m in March 2020
Strike-off threshold
£25,000
Below = DS01 strike-off + capital treatment; above = MVL required
BADR rate trajectory
| Tax year | BADR rate | Source |
|---|---|---|
| Pre-April 2025 | 10% | Original Entrepreneurs' Relief rate |
| 2025/26 | 14% | Autumn Budget 2024 step-up |
| 2026/27 | 18% | Confirmed (Autumn Budget 2024 schedule) |
| 2027/28+ | 18% | No further announced increases (yet) |
Despite the rate rise, BADR at 18% remains substantially below the dividend higher rate 33.75% and additional rate 39.35%. For most owner-managed limited companies with retained profits over £20k, MVL still wins materially over dividend extraction.
4 worked MVL vs dividend scenarios
| Scenario | Retained profit | MVL net | Dividend net | MVL saves |
|---|---|---|---|---|
| Small retained profit Under £25k threshold suggests informal strike-off route - but at £30k must use MVL or dividend. | £30,000 | £23,090 | £20,044 | £3,046 |
| Mid retained profit MVL with BADR 18% typically wins vs dividend extraction at 33.75% higher-rate. | £100,000 | £80,490 | £66,419 | £14,071 |
| Substantial profit, additional-rate owner MVL at 18% BADR dramatically beats dividend at 39.35% additional-rate. | £300,000 | £243,260 | £182,147 | £61,113 |
| Large profit near BADR cap BADR covers full amount (under £1m lifetime). 18% × £597k taxable = ~£107k tax. | £600,000 | £489,260 | £364,097 | £125,163 |
MVL net includes IP costs (typically £2,500-£4,000). Dividend net assumes the entire retained profit is extracted in a single tax year - spreading dividends across multiple tax years would partially mitigate the rate disadvantage but rarely beats MVL's BADR rate for substantial profit levels.
TAAR phoenix rule - the 2-year trap
Section 396B Income Tax (Trading and Other Income) Act 2005 (TAAR - Targeted Anti-Avoidance Rule), introduced April 2016, re-classifies MVL distributions as DIVIDENDS (not capital gains) if you continue similar activity within 2 years of liquidation.
Four conditions must ALL be met for TAAR to apply: (1) at the time of distribution, the recipient continues to be involved in similar trade or activity through any vehicle; (2) the trade is carried on within 2 years of distribution; (3) the main purpose is to gain tax advantage; (4) it would be reasonable to assume the arrangement was designed to obtain the tax advantage.
Safe vs unsafe patterns: Safe: genuine retirement, complete sector change, business sale to unrelated buyer who takes over the trade, dormancy with no re-trading. Unsafe: closing consultancy A and starting consultancy B with same clients next month, "rebranding" same trade, husband closes company then wife starts identical trade. HMRC's manual provides extensive examples (CTM36300+). The 2-year window is calendar time from distribution date - distribute December 2026 = clean to start similar from December 2028+. Document the "clean break" carefully if planning future activity.
Informal strike-off (DS01) vs MVL decision tree
- Retained profit under £25,000: file Form DS01 (£33 fee, Section 1000A Companies Act 2006). Distribution to shareholders treated as CAPITAL under CTA 2010 Section 1030A (formerly ESC C16). Cheap, fast (3-6 months), no IP needed.
- Retained profit £25,000 to ~£15k: still strike-off route, but capital benefit smaller than IP costs. Dividend extraction may be simpler if owner is basic-rate.
- Retained profit £15k-£1m: MVL with BADR is typically optimal. £2,500-£5,000 IP cost easily recovered through BADR rate vs dividend rate.
- Retained profit £1m+: MVL with BADR (first £1m) + standard CGT 24% on excess. Spouse-split structures can potentially double the £1m BADR cap.
- Insolvent company (cannot pay debts): NEVER use MVL (Declaration of Solvency would be false, personal liability + criminal). Use CVL (Creditors Voluntary Liquidation) instead.
Frequently asked questions
What is a Members Voluntary Liquidation (MVL)?
A formal company-closure process where a SOLVENT limited company's assets are distributed to shareholders as capital (not income). Governed by Part 4 Insolvency Act 1986 + Insolvency Rules 2016. Requires appointing a licensed Insolvency Practitioner (IP) who: (1) verifies the company can pay all its debts within 12 months (Declaration of Solvency); (2) distributes remaining assets to shareholders; (3) finalises company affairs and applies to Companies House for dissolution. Critical tax distinction: distributions in liquidation are treated as CAPITAL DISPOSAL (Section 122 TCGA 1992), taxed at Capital Gains Tax rates. For shareholders with BADR eligibility this means 18% CGT on the disposal vs up to 39.35% dividend tax if extracted via dividend. The difference for a £200k extraction by an additional-rate shareholder: ~£36k saved (18% × £197k vs 39.35% × £199.5k after dividend allowance).
What is BADR and what rate applies in 2026/27?
Business Asset Disposal Relief (BADR) - formerly Entrepreneurs' Relief - is a Capital Gains Tax relief for individuals selling or winding up a qualifying business. 2026/27 rate: 18%. Rate history: 10% (pre-April 2025) → 14% (2025/26) → 18% (2026/27 and 2027/28 onwards). The rise from 10% to 18% was announced in the Autumn Budget 2024 to fund spending commitments. £1,000,000 lifetime gain cap (cut from £10m in March 2020 to £1m). Section 169H-169V Taxation of Chargeable Gains Act 1992 (TCGA 1992). Eligibility: must be an employee or director of the company AND own at least 5% of ordinary share capital AND have held shares for at least 2 years before disposal AND the company must be a trading company (not an investment company). Standard test for owner-managed limited company shareholders.
When should I use MVL vs dividend extraction?
Rule of thumb: MVL wins above ~£40-50k of retained profit if the shareholder is higher-rate or additional-rate, given the BADR rate (18%) is well below dividend rates (33.75% / 39.35%). MVL costs £2-5k of IP fees + £200 Companies House filing - which means small retained profits don't justify the overhead. Worked breakeven analysis: £30k retained profit, additional-rate owner. Dividend route: £30k × 39.35% = £11,805 tax, net £18,195. MVL route: £2,500 IP cost, £30k - £3k AEA - £2,500 = £24,500 BADR taxable × 18% = £4,410 tax. Net £30k - £4,410 - £2,500 = £23,090. MVL net £4,895 more than dividend. Below ~£15k retained profit the IP fees eat the advantage; above ~£15k MVL wins; above £50k MVL wins decisively. Major caveats: TAAR phoenix restriction (below) and IR35 / personal service company patterns where HMRC may challenge.
What is the TAAR phoenix rule?
Targeted Anti-Avoidance Rule (TAAR), Section 396B ITTOIA 2005 (introduced April 2016). Re-classifies MVL distributions as DIVIDENDS (not capital gains) if you start a similar trade within 2 years of liquidation. Designed to stop "phoenix" patterns where an owner closes one company (capital exit at BADR rates) then immediately starts a new company doing the same trade. Four conditions must ALL be met for TAAR to apply: (1) at the time of distribution, the recipient continues to be involved in a similar trade or activity through any vehicle; (2) the trade is carried on within 2 years of distribution; (3) the main purpose is to gain tax advantage; (4) it would be reasonable to assume the arrangement was designed to obtain the tax advantage. HMRC published guidance with examples - genuinely retiring is fine; starting a competing consultancy with same clients is challenged. The 2-year phoenix window is calendar-time from distribution, not from formal dissolution. Strong audit trail of "clean break" essential if planning to return to similar activity later.
What is informal strike-off (DS01) and the £25,000 threshold?
Informal strike-off under Section 1000A Companies Act 2006 - apply via Form DS01 + £33 fee for a "dormant or non-trading" company to be struck off the Companies House register. Cheap (~£33 vs £2,500+ MVL) but TAX-IMPORTANT: HMRC's Extra Statutory Concession C16 (now codified in CTA 2010 Section 1030A) allows distributions BEFORE strike-off to be treated as CAPITAL only if the total distribution to shareholders is £25,000 or LESS. Above £25k via strike-off route, the distribution is treated as DIVIDEND (not capital), taxed at dividend rates. So for shareholders with retained profit over £25k who want capital treatment, MVL is the only route - strike-off won't get them the BADR rate. Below £25k retained profit, strike-off + capital treatment is the cheap exit. Other conditions for the £25k strike-off route: company must have ceased trading for 3+ months, no creditors, all tax / VAT / PAYE up to date.
How long does an MVL take?
Typical timeline 3-9 months end-to-end. Stages: (1) Pre-MVL planning - 2-4 weeks: settle debts, file final accounts, settle Corporation Tax, deregister VAT/PAYE. (2) Appoint IP + Declaration of Solvency - 1 week: director(s) swear declaration that company can pay all debts within 12 months; IP issues consent to act. (3) Convene members meeting + appoint liquidator - 1 week: shareholders pass special resolution. (4) Liquidator advertises in Gazette - 2 weeks: statutory notice period. (5) Asset distribution - 1-4 weeks: cash / assets distributed to shareholders. (6) Final accounts + HMRC clearance - 2-8 weeks: liquidator files final statement, applies for HMRC tax clearance. (7) Dissolution at Companies House - 3 months: automatic strike-off after final liquidation accounts filed. Tax timing: capital distribution is taxable in the year RECEIVED, not when dissolution completes. So a December 2026 distribution is reported on 2026/27 SA filed by Jan 2028. Plan around tax-year boundaries for AEA usage.
How much does MVL cost?
IP (Insolvency Practitioner) fees typically £2,500-5,000 for a straightforward case (single shareholder, single asset class - cash, no creditors). Complex cases (multiple property assets, foreign trading, employment claims, HMRC disputes): £5,000-15,000+. IP fees are fully tax-deductible from the disposal proceeds (Section 38(1)(c) TCGA 1992 - "incidental costs"). Other costs: £200 Companies House dissolution fee, £200-500 accountant final-accounts fee, £100-300 statutory advertising. Total ALL-IN cost typically £3,000-6,000 for a clean case. The cost is generally only justified for retained profits above £15-20k where BADR savings outweigh the overhead. Below that, dividend extraction or informal strike-off (under £25k) is cheaper. For very large retained profits (£500k+), some IPs offer flat-fee MVL packages around £1,500-2,500 because the work is largely standardised.
What if my company has more than £1m in retained profits?
BADR's £1,000,000 lifetime cap means only the first £1m of qualifying gains gets the 18% BADR rate. Above £1m, standard CGT rates apply: 24% for higher-rate / additional-rate taxpayers on shares (Section 4 TCGA 1992). For a £1.5m retained profit MVL: £1m at 18% BADR = £180k + £500k at 24% standard CGT = £120k. Total tax £300k. Same £1.5m extracted as dividend by additional-rate shareholder: £1.5m × 39.35% = £590,250 dividend tax. MVL saves ~£290k vs dividend. For founders with multiple successful companies sold over a career, the £1m BADR cap is lifetime - so the second / third exit gets full 24% rate, not BADR 18%. Track BADR usage on each disposal. Spouse-split share structures can effectively give each spouse their own £1m BADR cap if BOTH spouses meet the BADR eligibility criteria (5%+ shareholding, employee/director, 2-year holding) - common high-net-worth pre-MVL planning.
What is the difference between MVL and CVL?
Members Voluntary Liquidation (MVL): SOLVENT company. Director(s) sign Declaration of Solvency stating the company can pay all debts within 12 months. Shareholders distribute remaining assets to themselves. Used for: tax-efficient exit, retirement, business sale via asset stripping. Creditors Voluntary Liquidation (CVL): INSOLVENT company. Directors recognise the company cannot pay its debts. Creditors take priority over shareholders. Shareholders typically receive nothing. Used for: failed business, financial distress. Liquidator's job in CVL is primarily to maximise recovery for creditors. Directors face additional duties post-CVL (Section 214 IA 1986 wrongful trading liability if continued to trade while insolvent). Crucially MVL ≠ CVL - the tax treatment is completely different (capital gains in MVL, no shareholder return in CVL). False Declaration of Solvency in MVL (where company actually couldn't pay debts) triggers personal director liability + criminal offence. Get genuine professional advice on solvency before signing the Declaration.
Can I close my company and start a new one immediately?
Legally yes, but face the TAAR phoenix rule (Section 396B ITTOIA 2005) discussed above. If you wind up Company A at MVL/BADR rates and start similar Company B within 2 years, HMRC may re-classify Company A's distribution as dividend (39.35% additional-rate vs 18% BADR = 21pp extra tax). The "similar trade" test is broad - HMRC's manual gives examples: same trade with same clients = definitely caught; same trade with new clients = likely caught; different trade entirely = not caught. Pure retirement followed by unrelated activity (e.g. consultancy in completely different sector) typically safe. Genuine business sales where buyer takes over the trade are explicitly excluded - that's a normal commercial transaction. The 2-year window is calendar time from distribution date, so plan carefully: distribute in March 2027 = clean to start similar trade from March 2029. Many advisors recommend the 24-month-and-1-day approach with documented "change of life direction" evidence (retirement, new sector study, geographic move).
How is BADR claimed on the SA tax return?
Reported on SA108 Capital Gains Summary supplementary pages (Section CG13560+ HMRC Capital Gains Manual). For each disposal qualifying for BADR: enter the disposal on the standard CGT pages, then tick the BADR box and enter the qualifying amount. The system applies the 18% rate to the BADR amount automatically. Provide supporting calculation: acquisition cost (usually share-issuance value, often £1 nominal), disposal proceeds (the MVL distribution), allowable costs (IP fees, legal fees), qualifying period (must be 2+ years employee/director + 5%+ shareholding), and reference to the trade qualifying as "trading" not "investment". HMRC's BADR Helpsheet HS275 provides the official claim form template. Filing deadline: 31 January following the tax year of disposal. Online via Self Assessment. HMRC's typical BADR enquiry rate: ~1 in 30 returns (much higher than general SA 1 in 60) - particularly on close-company exits where TAAR phoenix risks exist. Keep ALL supporting documents for at least 6 years (statutory limit) but practically 20 years for substantial gains.
What other reliefs can stack with MVL?
Limited additional reliefs because BADR is itself a specific relief. (1) CGT Annual Exempt Amount £3,000: applied before BADR, reduces the qualifying gain by £3k. (2) Capital losses: any current-year or carried-forward capital losses (from other disposals) can be offset against the MVL gain BEFORE BADR is applied. (3) Pension contribution prior to year-end: reduces total income, potentially keeping you out of higher / additional rate bands - but doesn't affect the BADR rate directly. (4) Spouse split: pre-MVL share transfer to spouse at no-gain-no-loss (Section 58 TCGA) doubles the BADR £1m lifetime cap and AEA usage. Both spouses must independently meet BADR eligibility (5% shareholding, employee/director, 2-year holding). (5) EIS / SEIS deferral: investing the MVL proceeds into qualifying EIS shares can defer the CGT charge (Section 150 ITA 2007) - tax-deferred not abolished, eventually payable when EIS shares sold. Not generally beneficial unless you want the EIS income tax relief (30%) + tax-deferred CGT.
Related calculators and guides
- Capital Gains Tax calculator - underlying CGT mechanics.
- CGT allowance 2026/27 guide - £3,000 AEA.
- BADR guide - business asset disposal relief deep-dive.
- Optimum director salary 2026/27 - pre-MVL extraction strategy.
- Dividend tax calculator - the comparison route for retained profit extraction.
- Director's loan account Section 455 - DLA position pre-MVL.
- Corporation Tax calculator - final company-side tax bill.
- EIS / SEIS guide - CGT deferral routes for MVL proceeds.