Case study – Members’ Voluntary Liquidation (“MVL”)
A MVL is a tax efficient procedure for extracting assets from a solvent company for the benefit of its shareholders
A company had traded successfully for several years and, following a recent sale had a significant amount of cash in its reserves. In addition, it owned several freehold properties which the shareholders wished to have transferred into their personal names. The company's directors were no longer involved in the business and wanted to retire. The company’s accountants advised the most tax efficient way to close the company was to use an MVL to distribute the assets to the five shareholders.
At the initial meeting, which the company’s accountant attended, the possibilities regarding the freehold properties were discussed. It was decided they would be distributed to two of the shareholders as a non-cash distribution (distribution in specie).
Before the liquidation commenced the following was organised by the directors following discussions with us:
• Valuations were obtained for the properties.
• All creditors were paid.
• All Crown taxes were agreed and paid.
• The documents for the transfer of the properties were drafted by solicitors.
The same day as the MVL papers were signed the shareholders received the first distribution, including the transfer of the properties. All shareholders received the same value distribution. The only difference between the distributions was that two of the shareholders received a freehold property distribution in specie as part of their distribution.
The shareholders benefited from the tax efficiencies which are available when a company’s assets are distributed through an MVL meaning they were able to benefit from significantly lower tax liabilities than if they had drawn the cash from the company as income.
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