Can You Claim Business Asset Disposal Relief When Liquidating Your Company?

Published by RJP LLP – Chartered Certified Accountants and Tax Advisers

If you’re considering winding up a solvent company through a Members’ Voluntary Liquidation (MVL), you may be eligible for Business Asset Disposal Relief (BADR) — reducing the capital gains tax on final distributions to just 14%. (18% from 6 April 2026)

But eligibility for BADR in liquidation scenarios isn’t automatic. At RJP LLP, we regularly help shareholders unlock this relief when closing down their companies — and avoid costly pitfalls in the process.

Here’s what you need to know.

What Is an MVL?

A Members’ Voluntary Liquidation (MVL) is a formal process used to close a solvent company. Once creditors are paid, any remaining assets — including retained profits — are distributed to shareholders.
Because these distributions are taxed as capital, rather than income, they may qualify for BADR — subject to meeting the criteria.

When Does BADR Apply to MVLs?

If you’re a shareholder receiving a capital distribution through an MVL, you may be able to claim BADR on the gain — resulting in a 14% tax rate rather than the standard 24% for higher rate taxpayers.

To qualify:
• The company must have been a trading company (or holding company of a trading group)
• You must have been an employee or officer (e.g. director)
• You must have held at least 5% of shares and voting rights
• You must have met these conditions for at least 24 months prior to the liquidation

RJP Tip: Even if your company is no longer actively trading, as long as it was a trading company within the 3 years prior to liquidation, you may still qualify.

Common Mistakes That Can Jeopardise Your BADR Claim

While BADR is available in liquidation scenarios, it’s easy to fall foul of the rules if you don’t plan ahead. Common issues include:

• Non-trading companies or those with substantial investment income/assets (like property)
• Incorrect company structure, where shareholders don’t meet the 5% test
• Liquidating too late after a company ceases to trade
• Failing to document employment/directorship status properly

It’s important to get specialist advice before the liquidation starts, especially if the company has undergone changes or group restructuring.

What If You’ve Held Multiple Share Classes?

BADR is based on both economic and voting control. If you hold growth shares, alphabet shares, or non-voting shares, you’ll need to be certain that:

• Your shares carry at least 5% of ordinary share capital; and
• You’re entitled to at least 5% of profits and assets on winding up

The rules can be technical — and HMRC has challenged claims where voting or economic rights weren’t clearly established. At RJP LLP, we can assess your share structure and advise on eligibility.

How Much Can You Claim?

The lifetime cap for BADR remains at £1 million of qualifying gains taxable at 14%. This means you can save up to £100,000 in tax compared to the 24% CGT rate for higher rate taxpayers.

BADR must be claimed via your Self Assessment tax return, and the claim should be made by the first anniversary of the 31 January following the tax year in which the liquidation distributions are made.

Timing Your Liquidation: Why It Matters

• BADR applies only if the company qualifies at the date of liquidation
• HMRC will look at the last 3 years of trading activity
• Distributions made more than 24 months after trading ceases may be disqualified

Careful timing of cessation and liquidation is critical — and best planned in advance with input from your accountant and a licensed insolvency practitioner.

How RJP LLP Can Help

At RJP LLP, we work closely with both clients and insolvency professionals to:

• Confirm BADR eligibility before liquidation
• Review share structures and trading status
• Coordinate a tax-efficient MVL process, including directors’ final tax returns

Contact us via partners@rjp.co.uk to arrange a BADR/MVL consultation

Don’t miss out on a 14% tax rate when closing your company. Plan ahead and unlock the full value of your exit with expert support from RJP LLP.

RJP LLP are Chartered Certified Accountants and Tax Advisers helping business owners across London and the South East with exit planning, company liquidation, and capital gains tax advice.