Updated: 28 January 2026
Want to know how to pay the least tax when closing a limited company? It comes down to choosing the right method for your profit level. Smaller reserves may suit a simple strike-off, while larger profits usually qualify for far better tax treatment through an MVL and Business Asset Disposal Relief.
This guide compares both options and helps you choose the approach that leaves you with more of your hard-earned profits.
Quick breakdown: The most tax-efficient ways to close a limited company
| Option | When it is typically the most tax-efficient choice | Key tax benefit |
|---|---|---|
| Members’ Voluntary Liquidation (MVL) | When your retained profits are significant, and you qualify for BADR | Distributions taxed as capital gains with the potential 14% BADR rate, often producing the highest tax savings |
| Voluntary Strike Off | When retained profits are relatively low, and MVL fees would outweigh the tax benefits | Distributions are treated as capital gains without needing a liquidator |
Option 1: Close your company using an MVL
A Members’ Voluntary Liquidation is a formal process used to close a solvent company. It is an HMRC-approved process for companies that can pay off all debts and other liabilities within 12 months.
The process involves appointing a licensed Insolvency Practitioner (IP) to manage the liquidation and distribute assets to Shareholders in a tax-efficient way. This is a valuable option for those considering tax strategies for company closure.
Here’s how the MVL process works:
Appointing an Insolvency Practitioner: A licensed IP is brought in to oversee the process and ensure everything follows the correct legal steps.
Repaying debts: Any debts must be settled before any assets can be distributed to Shareholders. This is typically done before our appointment, as it is more cost-effective for the Directors.
Distributing assets: Once all debts are settled, the remaining company assets are distributed to Shareholders, typically in the form of cash or other assets.
An MVL offers significant tax savings when distributing company assets, making it a more appealing option compared to other closure methods. This approach is particularly useful for those focused on tax-efficient company closure.
Why an MVL is a tax-efficient company closure option
An MVL is a tax-efficient way to close a solvent company because of how distributions are treated for tax purposes. Two key factors make it stand out:
Capital Gains Tax advantage
In an MVL, shareholder distributions are subject to Capital Gains Tax instead of Income Tax. For the 2025–26 tax year, CGT rates on company assets are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. This is significantly lower than Income Tax rates, especially for higher and additional-rate earners.
Business Asset Disposal Relief
MVLs also allow eligible shareholders to claim Business Asset Disposal Relief. BADR reduces the CGT rate to 14% on qualifying gains, up to a lifetime limit of £1 million. Changes are scheduled from April 2026, when the rate will rise to 18%.
To qualify, you must have:
- At least 5% of the company’s shares
- Owned them for at least two years
- Been a Director or employee during that period.
If the company has stopped trading, you can still qualify as long as the shares are sold within three years. When the criteria are met, BADR can create substantial additional tax savings, making the MVL route even more attractive for solvent companies with significant reserves.
Related: What Are the Benefits of an MVL?
Example: How an MVL can provide tax savings
A Members’ Voluntary Liquidation can significantly reduce your tax burden when closing a solvent company. Let’s explore a real-world scenario to show how liquidating a company to avoid higher rate tax can lead to substantial savings.
Scenario:
Sarah owns a successful marketing consultancy business and has decided to retire. The company has £80,000 in retained profits. Her goal is to close the company in the most tax-efficient way possible.
Assumptions:
- Retained profits in the company are £80,000.
- If Sarah uses an informal strike-off, she intends to reduce retained profits to £25,000 by taking dividends of £55,000.
- Sarah has not taken any dividends in the 2025/26 tax year.
- Sarah has not drawn a salary from the company this year.
- She has a PAYE income of £60,000 from other employment, so dividends would be taxed at 33.75%.
- Sarah has no other income for the 2025/26 tax year.
- She has not yet used her Capital Gains Tax (CGT) allowance, which is £3,000.
- The dividend tax-free allowance for 2025/26 is £500.
- Estimated MVL fee: £1,600, including all associated costs.
| Informal strike-off | MVL | |
|---|---|---|
| Retained earnings of the company | £80,000 | £80,000 |
| Dividend paid during the 2024/25 tax year | £55,000 | £500 |
| Retained earnings after dividend | £25,000 | £79,500 |
| Annual CGT exemption used | £3,000 | £3,000 |
| Amount of Capital Gain | £22,000 | £76,500 |
| Capital Gains Tax Payable | £3,080 | £10,710 |
| Dividend Tax Payable at 33.75% | £18,419 | None |
| MVL fee (estimated) | None | £1,600 |
| Total tax and fees | £21,499 | £12,310 |
| Total savings with MVL | £9,189 |
Summary
- Total cost with an informal strike-off: £21,499
- Total cost with an MVL: £12,310
- Tax savings with an MVL: £9,189.
By opting for an MVL, Sarah saves £9,189 in taxes and fees compared to an informal strike-off, showing how an MVL can be a highly tax-efficient way to close a company.
Explanation of calculations:
- Dividend payment: With an informal strike-off, Sarah takes a £55,000 dividend, applying the £500 tax-free allowance. For the MVL, she only takes a £500 dividend to utilise this allowance.
- Capital Gains Tax (CGT): After deducting the £3,000 CGT allowance, the taxable gain is £22,000 for the informal strike-off and £76,500 for the MVL. With Business Asset Disposal Relief (BADR), the CGT rate is 14%.
- Dividend tax: For the informal strike-off, the remaining £54,500 dividend (£55,000 – £500 allowance) is taxed at 33.75%.
- Total tax and fees: This includes the MVL advisor fee of £1,600 for the MVL option.
Note on upcoming tax changes
If Sarah waits until after April 2026, the BADR rate will increase to 18%. Delaying the MVL until April 2026 would result in a higher tax liability. By closing her company now with an MVL, Sarah maximises her tax savings.
Ready to maximise your tax savings?
Closing your company before the BADR increase can make a significant difference to your final tax bill. If you want tailored guidance on the most tax-efficient route, our team can help.
Option 2: Close your company using a voluntary strike off
A voluntary strike off is the simplest way to close a solvent limited company. It involves applying to Companies House to have the company removed from the register. This option is generally only tax-efficient for small amounts of retained profit and is often used when a company has naturally come to an end and has very little left to distribute.
A voluntary strike off may be appropriate if:
- Your company has a small amount of retained profit
- The company has not traded in the last three months
- There are no outstanding liabilities, payroll schemes or HMRC obligations
- No legal action or liquidation threats are in place
- You want a low-cost closure without a formal liquidation process.
Before applying to strike the company off, Directors must:
- Pay all outstanding liabilities, including Corporation Tax, supplier invoices and payroll
- File final accounts and a final company tax return with HMRC
- Distribute any remaining assets to shareholders
- Close company bank accounts and transfer domain names
- Formally agree on the closure through a board resolution.
How the strike-off process works
Once the company has met the eligibility criteria and completed the necessary preparations, the voluntary strike-off process is as follows:
Directors complete and sign Form DS01: A majority of the Directors must approve the decision to close the company.
Submit the form to Companies House: This formally requests that the company be removed from the register.
Send copies to relevant parties within seven days: This includes creditors, employees, shareholders, pension trustees and any Directors who did not sign the form.
Companies House places a notice in The Gazette: This public notice gives anyone who may be affected the opportunity to object to the strike off.
If no objections are raised, a second Gazette notice is published. This confirms that the company has been officially dissolved and removed from the register.
After dissolution, Directors must retain all business records for seven years, including bank statements, invoices, receipts and accounting documents.
Tax implications of voluntary strike off
A strike-off can be tax-efficient for very small distributions. Any final distributions are treated as capital rather than income, provided the total amount distributed is modest and the company meets all the strike-off conditions.
A strike off may be tax-efficient if:
- Retained profits are low
- Shareholders can use their £3,000 annual Capital Gains Tax allowance
- No shareholder qualifies for BADR
- The tax saved would not outweigh the cost of an MVL.
A strike off becomes less tax-efficient if you plan to distribute a larger amount of profit. When more substantial profit is taken as dividends before striking off, tax is charged at the 2025 to 2026 dividend rates:
- 8.75% for basic rate taxpayers
- 33.75% for higher-rate taxpayers
- 39.35% for additional rate taxpayers.
For companies with more substantial retained profits, a Members’ Voluntary Liquidation is almost always the more tax-efficient route because BADR can reduce Capital Gains Tax to 14% on qualifying gains.
How to save tax when closing a company
Here are some key strategies to help you make the most of your MVL and reduce your tax liabilities.
Use Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) is one of the strongest tax benefits available when closing a solvent company. For the 2025/26 tax year, BADR reduces the Capital Gains Tax rate on qualifying gains to 14%, up to a £1 million lifetime limit.
If you meet these criteria, MVL distributions can be taxed at a much lower rate than salary or dividends. Using BADR correctly is often the biggest factor in reducing the tax bill when closing a limited company.
Time your business closure
Timing plays a crucial role when deciding how to close your company tax efficiently. Planning your MVL before 6 April 2026 can secure the current 14% BADR rate. From that date, CGT on business gains is set to rise to 18%, increasing the overall tax cost of liquidation.
You can also reduce your tax burden by:
- Closing the company in a year when your personal income is lower, reducing CGT exposure
- Making full use of the £3,000 CGT annual exemption for 2025/26
- Allowing sufficient time to meet the two-year BADR qualifying period.
Good timing ensures more of your retained profits go to you rather than HMRC.
Consider distributions in specie
Distributions in specie can help you avoid unnecessary taxes or costs by transferring assets directly to shareholders rather than selling them before liquidation. Common examples include property, equipment, or shares.
This approach can help you:
- Defer tax until the asset is eventually sold
- Avoid transaction or sale costs, keeping more value inside the company
- Protect asset value if market conditions are poor and a quick sale would reduce proceeds.
For some owners, distributions in specie can be an effective way to further reduce the total tax impact of winding up their company.
Related: How to Prepare for Members’ Voluntary Liquidation
Important HMRC rules to be aware of
HMRC has rules in place to prevent people from using an MVL purely to avoid Income Tax. These do not apply to genuine cases, such as retirement or permanently closing a company, but you should be aware of two key points.
Transactions in Securities (TiS)
HMRC can reclassify MVL distributions as income if they believe the company is being wound up solely to turn income into capital. This usually only becomes an issue if there is no genuine commercial reason for closing the company.
How to stay compliant:
Have a clear business reason for the liquidation and keep documentation to support it. An Insolvency Practitioner can help ensure your case is presented correctly.
Targeted Anti-Avoidance Rule (TAAR)
TAAR prevents “phoenixing,” where someone closes a company, extracts profits at Capital Gains Tax rates, and then starts a similar company soon after.
If you start or become involved with a similar business within two years of the MVL, HMRC may tax the distribution as income at higher rates.
How to stay compliant:
Only use an MVL if you are genuinely ceasing to trade or leaving the industry. If you intend to continue a similar company, strike-off may be more appropriate.
Clarke Bell can help
If you want to close your company in the most tax-efficient way but are unsure where to start, we can walk you through the process. Our licensed Insolvency Practitioners handle MVLs on a daily basis and can advise you on the best approach for your specific situation.
If you’re ready to start the process or have questions, contact Clarke Bell today to see how we can help make your company closure smooth and tax-efficient.
