You might be retiring with nobody to take the business on. Or you might already have sold the business and its assets, leaving a company with money in the bank and nothing left to do. Either way, if the company can pay everything it owes, a members' voluntary liquidation is the formal way to close it and pay out what's left.
This guide explains how an MVL works in England and Wales and how the money you take out is taxed. It ends with how an MVL compares with striking the company off or selling it.
What a members' voluntary liquidation is
In a liquidation, also called a winding up, a company's assets are used to pay its debts and anything left goes to the shareholders. The company is then dissolved and no longer exists.
There are three kinds of liquidation. Two are for companies that can't pay their debts. A members' voluntary liquidation is for a company that can, which is why it's sometimes called a solvent liquidation. GOV.UK gives retiring, and stepping down from a family business that nobody else wants to run, as examples of when owners choose it.
An MVL is also one way to finish things off after an asset sale. If your company sells its business and assets, the buyer pays the company rather than you, and a liquidation is one way to pass that money on. Our guide to share sales and asset sales explains the difference.
The declaration of solvency
An MVL starts with the directors. Before the shareholders vote, the directors, or a majority of them if there are more than two, make a statutory declaration. In it they confirm that they've made a full inquiry into the company's affairs, and that in their opinion the company will pay its debts in full, with interest at the official rate, within a period they state of no more than 12 months.
The declaration must include a statement of the company's assets and liabilities at the latest practicable date. It has to be made in the five weeks before the shareholders pass their resolution, or on the same day before they pass it. GOV.UK says it must be signed in front of a solicitor or notary public.
Directors need to take this seriously. A director who makes the declaration without reasonable grounds can be fined or imprisoned. If the debts then aren't paid within the period stated, the law presumes the director didn't have reasonable grounds unless they can show otherwise. So settle or provide for every debt you know about, including tax, before you sign.
The steps, in order
- Get the company ready. Collect what customers owe, pay suppliers, settle with HMRC and decide what should happen to assets such as property or vehicles. Your accountant and the insolvency practitioner you plan to use can help with the figures.
- The directors' declaration. The directors make the declaration of solvency, with the statement of assets and liabilities.
- The shareholders' resolution. Within five weeks of the declaration, the shareholders pass a special resolution, which needs at least 75% of the votes, to wind the company up voluntarily. The winding up starts the moment it's passed.
- Appointing the liquidator. At the same meeting the shareholders appoint an authorised insolvency practitioner as liquidator. From then on the directors' powers end, unless the shareholders or the liquidator agree otherwise.
- The notices. The resolution must be advertised in The Gazette within 14 days. A copy of the declaration goes to Companies House within 15 days of the resolution.
- The liquidation itself. The company stops carrying on business, except as far as it needs to for the winding up. The liquidator pays the creditors and then pays what's left to the shareholders.
- The final account. When everything is settled, the liquidator sends a final account to the shareholders and to Companies House. The company is dissolved three months after Companies House registers it.
What the liquidator does
The liquidator takes control of the company from the day they're appointed. For a solvent company, their main jobs are these.
- Settling any outstanding contracts or disputes.
- Selling the company's assets, or passing them to the shareholders as they are.
- Paying the creditors, including the final VAT bill, and the costs of the liquidation.
- Paying the rest to the shareholders, in line with their rights.
- Getting the company removed from the register.
If the liquidation runs for more than a year, the liquidator must send the shareholders and Companies House a progress report for each 12 months from their appointment, within two months of the end of each period.
If the liquidator comes to the view that the company won't pay its debts in full within the period in the declaration, they must tell the creditors within seven days. The creditors can then nominate a liquidator, and the winding up becomes a creditors' voluntary liquidation instead.
Choose a liquidator as you'd choose any adviser. Ask for their fee in writing, and ask how long they expect the liquidation to take.
How long an MVL takes
There's no fixed timetable. The period in the directors' declaration, which can't be more than 12 months, is about paying the debts, not a deadline for the whole liquidation. A company that holds only cash and has already paid its creditors tends to move faster than one with property to sell or an open tax enquiry. Once the final account is registered, dissolution follows three months later.
How money from an MVL is taxed
For owners with a lot of money left in the company, the tax is often the reason to choose an MVL. Payments to shareholders in a winding up are treated as capital rather than as dividends, so you pay Capital Gains Tax on the gain, which is broadly what you receive less what your shares cost.
For 2026 to 2027 the Capital Gains Tax rates are 18% on gains within your basic rate band and 24% above it, after a tax-free allowance of £3,000. Dividends, by comparison, are taxed at 10.75%, 35.75% or 39.35% above a £500 allowance, depending on your Income Tax band.
Business Asset Disposal Relief
HMRC's manual confirms that Business Asset Disposal Relief can apply to payments made in a liquidation, if the conditions are met. Among other things, for the two years before the payment the company must have been a trading company in which you held at least 5% of the shares and votes, and you must have been an officer or employee. Qualifying gains are taxed at 18%, up to a lifetime limit of £1,000,000.
The Budget on 28 October 2026 cut that limit to £500,000 for disposals made from 6 April 2027. HMRC's manual treats each payment you receive in a liquidation as a disposal of your shares on the date you receive it, so a payment received on or after 6 April 2027 would be expected to come under the lower limit unless the legislation says otherwise. HMRC says special provisions will apply to contracts entered into before 6 April 2027 that haven't been completed by then, and to certain share reorganisations and exchanges of securities not completed by then.
Because the relief's rate is now the same as the basic rate of Capital Gains Tax, it mainly helps with gains that would otherwise be taxed at 24%.
Timing matters if the company stopped trading some time ago. The relief can still apply after a company stops trading, but only if the payment is made within three years of the date it stopped, and you met the conditions for the two years before that date. A company that stops trading and then holds on to its cash for years can lose the relief.
A made-up example
A company has £400,000 left after paying its debts and the liquidator. Its owner holds all the shares, which cost £100. The owner qualifies for Business Asset Disposal Relief and hasn't used any of the lifetime limit. The gain is £399,900. After the £3,000 allowance, £396,900 is taxed at 18%, which comes to £71,442. Paid out as dividends instead, most of the same money would be taxed at 35.75% or 39.35%. The gain is under £500,000, so the tax would be the same on a payment received on or after 6 April 2027, as long as none of the limit had been used before.
The anti-avoidance rule for winding up
There's an important exception. Since 6 April 2016, a payment in a winding up can be taxed as income, like a dividend, if all four of these conditions are met.
- You had at least 5% of the shares and votes immediately before the winding up.
- The company was a close company, broadly one controlled by five or fewer people or by its directors, when it was wound up or at any time in the two years before.
- Within two years of the payment, you carry on a trade or activity the same as or similar to the company's, whether yourself, in a partnership, through a company in which you have at least 5%, or by being involved with one carried on by someone connected with you.
- It's reasonable to assume that avoiding or reducing Income Tax was a main purpose of the winding up.
The rule is aimed at what HMRC calls phoenixism, where someone winds up a company to take its profits as capital, then carries on the same business through a new one. It doesn't touch the part of a payment that only gives back what your shares cost. An owner who retires and doesn't work in the same field again doesn't meet the third condition.
There's no statutory clearance for this rule, so you can't get HMRC's confirmation in advance in the usual way. HMRC has also said it will investigate schemes that claim to get round it. If you might start or join something similar within two years, take advice before the company is wound up.
The Budget on 28 October 2026 announced that the rules on how payments from companies to their shareholders are taxed will be modernised from April 2028. HM Treasury's factsheet says this includes updating the anti-avoidance rules on taking profits out of a company, and that dividend tax and Capital Gains Tax rates don't change. The documents published with the Budget don't say how payments in a liquidation will be affected. The detail comes in draft legislation in 2027.
An MVL compared with striking off and with selling
| Striking off | Members' voluntary liquidation | Selling the company | |
|---|---|---|---|
| Who runs it | You, by applying to Companies House | A licensed insolvency practitioner | You and your advisers, with a buyer |
| Cost of the process | £13 to apply online, £18 on paper | The liquidator's fee | Advisers' fees |
| Tax on money paid to you | Capital if the total paid out is £25,000 or less, otherwise all of it is taxed as income | Usually capital, with Business Asset Disposal Relief if you qualify | Usually a capital gain on your shares |
| What you're paid for | The cash and assets left over | The cash and assets left over | The profit the business makes, as well as its assets |
Striking off is cheaper and needs no liquidator. The catch is the £25,000 limit. If the total paid to shareholders in anticipation of the strike-off is more than £25,000, none of it gets capital treatment. And if the company isn't dissolved within two years of a payment, or hasn't collected its debts and paid what it owes, the capital treatment is withdrawn.
If the business still makes a steady profit that doesn't depend entirely on you, compare both with a sale before you decide. A liquidation returns the company's net assets. A buyer may pay for the profit as well, which can be worth considerably more than the cash in the bank. Our guide to how to sell a business explains the process, and our guide to tax when you sell a business covers the tax on a sale.
These figures were checked after the Budget on 28 October 2026. It cut the Business Asset Disposal Relief lifetime limit to £500,000 for disposals from 6 April 2027, and announced changes from April 2028 to how payments to shareholders are taxed. It didn't change the rates of Capital Gains Tax or dividend tax. Check with your accountant before the directors sign the declaration.