Business Asset Disposal Relief (BADR) has long been a valuable relief for directors and shareholders looking to extract funds from their company in a tax-efficient manner. It is particularly relevant in the context of a Members’ Voluntary Liquidation (MVL), where distributions are typically treated as capital rather than income.
However, an upcoming change to BADR means timing is of the essence. With the Capital Gains Tax rate set to rise, those considering an MVL may wish to review their plans to understand how this change could affect them.
How is BADR changing in April 2026?
From 6 April 2026, the CGT rate applied to gains qualifying for BADR will increase from 14% to 18%.
While BADR will continue to offer a preferential rate compared to standard CGT, this change represents a notable increase in the amount of tax payable. In percentage terms, this equates to a 28% increase in the tax rate, which may impact the overall return to shareholders.
How could the BADR changes affect MVLs?
In a Members’ Voluntary Liquidation, company assets are realised and distributed to shareholders. These distributions are generally treated as capital, meaning BADR may apply (subject to eligibility criteria).
With the CGT rate increasing:
- Shareholders may retain less from distributions.
- The overall outcome of an MVL may differ compared to completing the process before April 2026.
- The financial impact may be more significant where companies hold substantial retained profits.
Who will the BADR changes impact?
The changes to BADR are likely to affect a range of individuals, including:
- Owner-managed business directors planning an exit.
- Shareholders with retained profits in their company.
- Individuals approaching retirement and considering closure of their business.
- Those already exploring or preparing for an MVL.
For businesses considering a solvent liquidation, understanding how these changes interact with their plans will be important.
How to mitigate the BADR changes
For those already considering an MVL, it’s a good idea to review whether plans can be brought forward ahead of 6 April 2026.
However, decisions should be based on a full understanding of the wider position, including:
- The company’s financial position and ability to settle liabilities.
- Eligibility for BADR
- Commercial readiness to proceed with liquidation.
- Personal and business objectives.
Directors should seek appropriate independent tax advice to understand their individual position before taking action.
Video Summary
How can Bridgewood help?
Bridgewood’s licensed insolvency practitioners can support directors and shareholders in understanding their options around solvent liquidation.
We can:
- Explain how an MVL works and whether it may be appropriate
- Work alongside your accountant or tax adviser
- Guide you through the MVL process from appointment to completion
- Ensure the liquidation is handled efficiently and in accordance with statutory requirements
If you are considering closing your company or exploring your options, early discussions can help you understand the practical steps involved and plan accordingly.
Disclaimer: Bridgewood provides insolvency and restructuring advice only and does not provide tax advice. You should seek independent tax advice tailored to your individual circumstances.
