Why is a MVL tax efficient?
In the ordinary course of business, any funds distributed to shareholders by way way of a dividend are taxed as income. Dividend income can currently be taxed up to 38.1% for additional rate tax payers.
In a MVL all funds distributed are treated as a capital distribution, and subject to Capital Gains Tax (CGT) rates. CGT rates are always lower than income tax rates; reducing the personal tax burden for shareholders and maximising the hard earned company funds to be extracted.
Extracting funds as a capital distribution comes with more benefits! In some circumstances a shareholder may be able to claim entrepreneurs relief on funds extracted from a MVL. This means that any funds extracted will only be taxed at 10%, providing the qualifying conditions are met.
The main conditions for entrepreneurs relief is that the shareholder holds at least 5% of the shares in the company, and has for a period of at least 24 months, and perhaps more importantly must not trade in the same or similar industry for a further 24 month period after the relief is claimed. Ballard Business Recovery are not tax advisers but we regularly work with accountants to agree a strategy that results in shareholder extracting funds from a MVL in the most tax efficient manner.
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