MVL Entrepreneurs Relief / Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief, can reduce the Capital Gains Tax payable on qualifying capital distributions. When used alongside a Members’ Voluntary Liquidation (MVL), it can provide a tax-efficient way to extract retained profits from a solvent company, provided the qualifying conditions are met.

At Frost Group, our licensed Insolvency Practitioners help company directors close solvent companies through a Members’ Voluntary Liquidation. We’ll explain how Business Asset Disposal Relief applies, whether you qualify and how the MVL process works, helping you make informed decisions based on your individual circumstances.

What Is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, is a tax relief that can reduce the rate of Capital Gains Tax on qualifying gains. It may apply when an individual disposes of qualifying business assets, including shares in a company, provided the relevant qualifying conditions are met.

When a solvent company enters a Members’ Voluntary Liquidation, distributions to shareholders are generally treated as capital distributions rather than income. If you qualify for Business Asset Disposal Relief, you may pay Capital Gains Tax at the reduced BADR rate on qualifying gains, subject to the £1 million lifetime limit.

Business Asset Disposal Relief may apply to qualifying disposals involving:

• Shares in a personal company.
• All or part of a trading business.
• Certain business assets used within a qualifying business.
• Assets disposed of as part of closing a qualifying business.

As every situation is different, it’s important to review your individual circumstances before relying on Business Asset Disposal Relief.

Entrepreneurs’ Relief and Business Asset Disposal Relief: What’s Changed?

Business Asset Disposal Relief is the current name for the tax relief previously known as Entrepreneurs’ Relief. The name changed in April 2020, but the purpose of the relief remained largely the same. Many people still search for Entrepreneurs’ Relief, which is why the terms are often used interchangeably.

The most significant change was the reduction of the lifetime limit from £10 million to £1 million per individual. The qualifying period also increased from one year to two years for eligible disposals.

Although the name has changed, Business Asset Disposal Relief continues to support individuals disposing of qualifying business assets. If you qualify, it can reduce the Capital Gains Tax payable when closing a solvent company through a Members’ Voluntary Liquidation or disposing of other qualifying business interests.

Who Qualifies for Business Asset Disposal Relief?

To qualify for Business Asset Disposal Relief, you must meet HMRC’s qualifying conditions throughout the relevant qualifying period. The exact requirements depend on the type of disposal, but specific conditions apply to shares in a company.

For shareholders disposing of shares through a Members’ Voluntary Liquidation, the following conditions will usually apply:

• You must hold at least 5% of the ordinary share capital.
• You must hold at least 5% of the voting rights.
• You must be an employee or office holder of the company.
• The company must be a trading company or the holding company of a trading group.
• The qualifying conditions must normally be met for at least two years before the disposal.

Meeting these conditions does not automatically guarantee a successful claim. Your eligibility will depend on your individual circumstances and the nature of the disposal. If you’re unsure whether you qualify for Business Asset Disposal Relief, it’s always worth seeking professional advice before beginning the MVL process.

Business Asset Disposal Relief Rates

The rate of Business Asset Disposal Relief depends on when the qualifying disposal takes place. For qualifying disposals made between 6 April 2025 and 5 April 2026, the BADR rate is 14%. For qualifying disposals made on or after 6 April 2026, the rate is 18%.

Business Asset Disposal Relief is subject to a £1 million lifetime limit. This means the reduced rate only applies to qualifying gains up to that amount across your lifetime. Any qualifying gains above the lifetime limit will usually be taxed at the standard Capital Gains Tax rates.

Understanding the tax rules before placing a company into a Members’ Voluntary Liquidation can help you plan ahead. If you believe you qualify for Business Asset Disposal Relief, taking advice early can help you understand how the rules apply to your circumstances.

How Business Asset Disposal Relief Applies to an MVL?

A Members’ Voluntary Liquidation is a formal liquidation process used to close a solvent company. During an MVL, the company’s remaining assets, including retained profits, are distributed to shareholders as capital distributions once liabilities have been settled.

Where the qualifying conditions are met, those capital distributions may qualify for Business Asset Disposal Relief. This can reduce the Capital Gains Tax payable on qualifying gains, making an MVL a tax-efficient way to close a solvent limited company.

Business Asset Disposal Relief does not apply automatically. Shareholders must satisfy the relevant eligibility criteria, and the tax treatment will depend on their individual circumstances. Seeking advice before starting the MVL process can help you understand your options.

Worked Example of Business Asset Disposal Relief in an MVL

A company director decides to close a solvent limited company with £500,000 in retained profits. The company enters a Members’ Voluntary Liquidation, and the remaining funds are distributed as capital distributions.

If the shareholder meets the qualifying conditions for Business Asset Disposal Relief, the distribution may be taxed at the reduced BADR rate, subject to the lifetime limit. This could result in a lower Capital Gains Tax liability than extracting the same funds as income.

Every case is different, so it’s important to seek professional advice before relying on Business Asset Disposal Relief.

How to Claim Business Asset Disposal Relief After an MVL?

Business Asset Disposal Relief is usually claimed through your Self Assessment tax return for the relevant tax year. You’ll need to report the capital gain and confirm that you meet the qualifying conditions.

Keeping accurate records of your Members’ Voluntary Liquidation and any capital distributions can help support your claim. If you’re unsure, it’s always worth seeking professional advice.

How Frost Group Helps Shareholders?

If you’re considering a Members’ Voluntary Liquidation, Frost Group’s licensed Insolvency Practitioners can explain your options and guide you through the process. We’ll work with you and your tax adviser to help ensure the liquidation is completed correctly.

For free and confidential advice, call 0800 640 9481 during office hours. If you need urgent out-of-hours assistance, you can also contact us on 07714 099 691 to speak with one of our insolvency experts.