One of the primary reasons directors choose an MVL over simply taking dividends is tax efficiency. When a company is liquidated, distributions to shareholders are typically treated as capital receipts rather than income, which means they may be subject to Capital Gains Tax (CGT) rather than the higher rates of income tax and USC. In many cases, Entrepreneur Relief can apply, reducing the effective CGT rate to 10% on qualifying gains. This can result in a significantly lower tax liability compared to extracting the same funds as salary or dividends over several years. Tax advice specific to your circumstances should always be sought before proceeding.
