What Is a Distribution In Specie?
Distributing ‘in specie’ – which translates to ‘in its actual form’ – refers to an asset being distributed “as is” rather than selling it and distributing it as cash.
This sometimes occurs in a Members’ Voluntary Liquidation, or MVL, where a solvent company is shut down and liquidated to return the company’s assets to shareholders.
In this guide, we’ll explain what an MVL is and why you might distribute your assets in specie.
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What Is an MVL?
A Members’ Voluntary Liquidation is when a solvent company chooses to close down, sell its assets, and return the net value to shareholders.
The MVL process functions as a tax-planning exercise:
- Returns are subject to Capital Gains Tax, not Income Tax
- Members may be eligible for Business Asset Disposal Relief
An MVL is the most cost-effective closure route for businesses with assets totalling £25,000 or more. The process must be carried out by a licenced insolvency practitioner.
Unlike Income Tax, which applies to the entire amount received, Capital Gains Tax applies only to the profit made on the sale of an asset. For example, if you bought an asset for £20,000 and sold it for £25,000, only the £5000 would be taxable. This allows for huge savings.
Previously known as Entrepreneurs Relief, Business Asset Disposal Relief can allow you to halve the rate of Capital Gains Tax from 20% to 10%.
What Assets Can Be Distributed In Specie?
Any asset of a company can be distributed in specie.
This means it isn’t just physical assets you can distribute “as is”.
You can also distribute financial assets – such as investments, bonds, or shares – without liquidating them for cash.
Why Might Assets Be Distributed In Specie?
The ability to distribute assets in specie grants directors flexibility in how their company is liquidated.
There are many reasons why you might want to distribute your assets in specie:
- You may not want to sell the asset
- The asset may be difficult to sell (meaning cash isn’t readily available)
- To transfer equipment from the liquidated company to a new one
- To hold on to financial investment positions you don’t want to sell
Essentially, in specie distributions allow you to close down your company in the most tax-efficient way, without selling things you don’t want to.
Overdrawn Directors Loan Accounts
In specie distributions are commonly used to deal with overdrawn director’s loan accounts.
An overdrawn director’s loan account refers to money that the director owes to the company.
All debts to a company are considered an asset – including overdrawn directors’ loan accounts. This means they can be distributed like any other company asset.
If you owe money to your company, you can distribute the debt to yourself to resolve it, instead of having to pay money back into the company just to distribute it back to yourself.
Speak to an Expert
If you’re looking to close down your company without having to pay eye-watering tax rates, speak to one of our liquidation specialists.
Our team can guide you towards the most cost-effective way to pursue your company’s closure, addressing any concerns with the handling of specific assets.
Get in touch today to book a free consultation.
