When you decide to close a solvent company (one whose assets exceed its liabilities), the question often turns to how much the business is worth. But the more important question is how much you will actually keep.
The answer largely depends on how the funds leave the company, and it can make the difference between thousands and tens of thousands of pounds in tax savings.
Business Asset Disposal Relief (BADR) is a major benefit of closing a business with a Members’ Voluntary Liquidation (MVL), as it can dramatically reduce the tax paid on your final payout.
In this guide, John Bell, Founder of company liquidation firm Clarke Bell, explains when Directors are entitled to Business Asset Disposal Relief when closing a company, and what you should check before starting the liquidation process.
What Is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR), known until 2020 as Entrepreneurs’ Relief, lowers the rate of Capital Gains Tax (CGT) that Directors pay on qualifying business disposals. Instead of paying the standard rate on the gain, a qualifying individual pays a reduced rate, up to a lifetime limit.
The rate has increased twice in recent years. Qualifying disposals were taxed at 10% for years. In 2025, the rate rose to 14%, and as of 6 April 2026, Directors will pay 18% in tax on Capital Gains. Still, compared to the standard CGT rate of 24%, qualifying for BADR leaves Directors paying noticeably less than they otherwise would.
The relief carries a lifetime limit of £1 million of qualifying gains. Directors can claim it more than once across different disposals, but only up to the cap; any gains beyond the £1 million limit are taxed at the standard rate. HMRC sets out the full eligibility conditions in its Business Asset Disposal Relief guidance.
How Closing Your Company Changes the Tax You Pay
When you withdraw money from a company in the ordinary way, it is usually taxed as income. But when you close a solvent company through a Members’ Voluntary Liquidation (MVL), the funds distributed to shareholders are instead treated as capital.
The same pot of money can therefore be taxed in different ways depending on the route out:
- Distributed as income, through salary or dividends: Taxed as Income, which takes a substantial slice for a higher-rate taxpayer.
- Distributed as capital through an MVL: Taxed as CGT, unless Directors qualify for BADR, where the tax rate is reduced further.
The money in the company does not change, but the way it is released directly determines how much you keep.
Three Things to Check before You Apply for BADR
1. Do you meet the qualifying conditions?
HMRC sets out strict eligibility criteria for qualifying for Business Asset Disposal Relief. Specifically, BADR applies where you:
- Own at least 5% of the company’s shares
- Have 5% voting rights
- Are entitled to 5% of the distributable profits
- Are an employee or a Director of the company.
You must meet the ownership and employment criteria for at least 2 years before the liquidation distribution.
2. How much of your lifetime limit is left?
The £1 million limit is a lifetime figure, not an annual one. If you have sold a business before and claimed BADR, check how much headroom remains before you assume the full relief is available.
3. How much retained profit do you expect?
Most businesses assume that the biggest gains can be made by closing a business through an MVL and claiming BADR, and that can be true. But for some companies, an informal strike-off (also known as company dissolution) is a better fit.
A company dissolution is far more cost-effective than an MVL, and retained profits are subject to Capital Gains Tax, but only up to a £25,000 cap. If your total distributions extend this cap, you’ll have to pay Income Tax on the whole amount, not just on the part above the threshold. Income Tax (dividend) rates are much higher, so this is where Directors can lose a lot of money without realising it.
BADR is not available if you close your company through a voluntary company dissolution, as strike-offs do not constitute a formal disposal for Capital Gains Tax purposes. But, for businesses that stand to retain less than £25,000, dissolution can prove far cheaper — even if you would be eligible for BADR.
What Is BADR Actually Worth?
BADR tax savings are inevitably dependent on retained profit.
If a Director is closing a solvent company with £300,000 in retained profit, they can expect to pay approximately £54,000 if they qualify for BADR (treated as Capital, taxed at 18%). If BADR does not apply, the amount is closer to £72,000 (taxed at 24%).
If the disposal is drawn as income, a higher-rate taxpayer can expect to pay significantly more.
It’s fair to acknowledge that BADR is less generous today than it was a few years ago. But Directors can still make big savings compared to the standard rate.
