Closing a Limited Company: How to Take Out the Money Tax Efficiently

If you’re closing a limited company and there is money or other assets left in the business, how you take those assets out can make a significant difference to the amount of tax you pay.

One particularly important figure is £25,000.

Where the conditions are met, distributions of up to £25,000 made before a company is struck off can potentially be treated as capital distributions rather than dividends.

If the amount exceeds £25,000, however, the position changes significantly.

Here’s how it works.

Why Does Capital Treatment Matter?

Normally, when a limited company distributes profits to its shareholders, those payments are taxed as dividends.

When a company is being wound up, however, distributions can sometimes be treated as capital instead.

This matters because capital distributions are subject to Capital Gains Tax (CGT) rather than dividend income tax.

And, if you qualify for Business Asset Disposal Relief (BADR), the CGT treatment may be particularly beneficial.

But capital treatment isn’t automatic simply because you’re closing the company.

The £25,000 Striking-Off Rule

If you’re closing a solvent company using a voluntary strike-off rather than a formal liquidation, distributions made in anticipation of the dissolution can be treated as capital provided the total distributions do not exceed £25,000 and the relevant conditions are satisfied.

For example, suppose you’ve finished trading and your company has £20,000 remaining in its bank account after paying:

• Corporation Tax

• Suppliers

• Employees

• Accountancy fees

• Any other outstanding liabilities

You could potentially distribute that £20,000 to yourself before applying to have the company struck off.

Subject to the rules being satisfied, that distribution could be treated as capital rather than a dividend.

That’s potentially valuable.

What If There Is More Than £25,000?

This is where business owners need to be particularly careful.

If distributions made in anticipation of striking off exceed the £25,000 limit, you can’t simply treat the first £25,000 as capital and the balance as dividends under this rule.

If you want capital treatment for a larger amount, you will normally need to consider a Members’ Voluntary Liquidation (MVL).

An MVL is a formal process for winding up a solvent company and requires the appointment of a licensed insolvency practitioner.

Distributions made by a liquidator during a formal winding-up are generally treated as capital distributions.

That means an MVL can become attractive where substantial retained profits have accumulated in a company.

Could Business Asset Disposal Relief Apply?

Potentially.

BADR can reduce the Capital Gains Tax payable on qualifying disposals, but don’t assume that closing a company automatically qualifies you for the relief.

There are a number of conditions.

For an owner-managed trading company, these can include requirements relating to:

• How long you’ve owned the shares

• Your percentage shareholding

• Voting rights

• Whether you’re an officer or employee of the company

• Whether the company is a qualifying trading company

The rules need to be checked against your individual circumstances.

There is also a lifetime limit on the gains that can qualify for BADR.

Watch the BADR Tax Rate

This is particularly important because the BADR rate has changed.

For qualifying disposals:

• 2025/26: 14%

• From 6 April 2026: 18%

So for a company being closed in the 2026/27 tax year, qualifying BADR gains are generally taxed at 18%, subject to the relevant conditions and available lifetime allowance.

The tax saving therefore needs to be calculated using the rates applying when the disposal actually takes place.

Don’t Forget Your CGT Base Cost

If a distribution receives capital treatment, you don’t necessarily pay CGT on the entire amount you receive.

Broadly, the calculation takes account of the allowable cost of your shares.

For many owner-managed companies that cost may be relatively small, but it still needs to be included when calculating the gain.

Your annual CGT exempt amount may also be available depending on your circumstances and other gains during the year.

The Anti-Phoenixing Rules

There’s another important trap.

HMRC doesn’t want business owners repeatedly closing companies, extracting accumulated profits as capital and then simply starting substantially the same business again.

Special anti-avoidance legislation can therefore potentially treat what would otherwise be a capital distribution as income.

This is particularly relevant where someone:

1. Winds up a company;

2. Receives a distribution;

3. Continues or restarts the same or a similar trade; and

4. One of the main purposes of the arrangements is obtaining an income-tax advantage.

So if you’re planning to close one company and start another carrying on substantially the same activity, take advice before extracting the money.

Strike-Off or Members’ Voluntary Liquidation?

A very simplified starting point is:

Situation	Possible approach
Company has less than £25,000 to distribute	Strike-off may allow capital treatment
Company has substantially more than £25,000	Consider an MVL
BADR conditions satisfied	Preferential CGT treatment may be available
Planning to restart a similar business	Anti-phoenixing rules need careful consideration
Company cannot pay its debts	Different insolvency procedures apply

An MVL isn’t free. There will be liquidator’s fees and additional administration, so you need to compare the potential tax saving against the cost of the liquidation.

For £30,000, for example, an MVL may not necessarily be worthwhile.

For £200,000 of retained profits, the calculation could look very different.

Plan Before You Stop Trading

This is the important point.

Don’t wait until you’ve already withdrawn the company’s cash before asking how it should be taxed.

Before closing a company, establish:

• How much cash and other assets will remain

• What liabilities still need paying

• Your share base cost

• Whether capital treatment is available

• Whether you qualify for BADR

• Whether an MVL would produce a worthwhile tax saving

• Whether the anti-phoenixing rules could apply

• Whether there are other assets that need dealing with before dissolution

The right answer depends on the numbers.

The Bottom Line

If you’re closing a solvent limited company with no more than £25,000 to distribute, it may be possible to strike the company off and have the final distribution treated as capital rather than a dividend.

If you’re distributing more than £25,000 and want capital treatment, a Members’ Voluntary Liquidation may need to be considered.

And where the relevant conditions are satisfied, Business Asset Disposal Relief may reduce the Capital Gains Tax payable.

But don’t assume that either capital treatment or BADR automatically applies.

Plan the closure before taking the money out of the company. A relatively small amount of tax planning at that stage can potentially make a substantial difference to the final tax bill.

This article is intended as a general guide only. The tax treatment of company distributions depends on individual circumstances and professional advice should be obtained before closing a company or making final distributions.

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