Closing a limited company creates tax in two places. The company pays Corporation Tax on its final profits. You then pay personal tax on the money you take out, either Capital Gains Tax (CGT) or Income Tax. Which one applies depends on how you close the company and how much cash is left.
This guide uses 2026/27 rates (6 April 2026 to 5 April 2027). It is general information, not tax advice.
What tax do you pay when closing a limited company?
You can face up to four taxes:
- Corporation Tax on profits and asset gains up to closure
- CGT or Income Tax on money you take out as a shareholder
- VAT on a final return, if you are registered
- PAYE and National Insurance on final pay, if you have staff
For solvent companies, one figure decides the personal tax: £25,000. Under a strike-off, up to £25,000 can be taxed as capital. Above it, the whole amount is taxed as income. A Members’ Voluntary Liquidation (MVL) has no such limit.
The three ways to close a company
| Route | Best for | Tax on what you take out | Cost |
|---|---|---|---|
| Voluntary strike-off | Solvent, with £25,000 or less left | Capital (CGT) up to £25,000 | £18 Companies House fee |
| MVL | Solvent, with larger reserves | All capital (CGT) | Liquidator fees, from about £1,500–£2,000 |
| Creditors’ Voluntary Liquidation (CVL) | Cannot pay debts | Shareholders usually receive nothing | Set by the liquidator |
Strike-off needs a company that has not traded, sold stock or changed its name in the last three months. It also cannot be facing liquidation or have a creditor arrangement. For the full process, see our guide to how to close a limited company in the UK.
Tax the company pays when it closes
Corporation Tax on the final period
Corporation Tax does not stop when trading stops. You must file a final Company Tax Return (CT600) and pay tax on profits up to closure, including gains from selling assets. In a liquidation, winding up starts a new accounting period, and later periods run for 12 months until the process ends.
The rates are 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between. You have 12 months after the period ends to file and nine months and one day to pay. If your final year made a loss, terminal loss relief may let you offset it against earlier profits.
Clean books make this easier. Free accounting software can produce the figures you need for the final return.
VAT, PAYE and other final bills
If you are VAT-registered, deregister within 30 days of your last taxable sale and file a final return. Stock or assets you still hold may attract VAT if you reclaimed input VAT on them and they are worth over £1,000.
If you employ people, pay final wages, follow redundancy rules and tell HMRC you have stopped employing.
Selling or sharing out assets
When the company sells equipment, vehicles, computers or a customer list, it pays Corporation Tax on any gain. Intellectual property is an asset too.
You can sometimes hand an asset to a shareholder instead of selling it. This is a distribution in specie. It can defer tax and save sale costs, but the asset needs a proper valuation.
Deal with every asset before closing. Anything left in a struck-off company, including bank balances and later HMRC refunds, passes to the Crown.
Tax you pay personally
Strike-off: the £25,000 rule
If the company’s retained profits are £25,000 or less, shareholders pay CGT. Above £25,000, the whole sum is taxed as income, usually as a final dividend. The extra £25,000 is not “tax-free”.
MVL: everything is capital
In an MVL, all distributions count as capital gains, whatever the amount. A licensed insolvency practitioner runs it. Directors sign a declaration that debts can be paid within 12 months. It usually takes three to six months.
2026/27 rates at a glance
| Item | Rate or amount |
|---|---|
| CGT, basic-rate band | 18% |
| CGT, higher and additional rate | 24% |
| CGT with Business Asset Disposal Relief (BADR) | 18% |
| Annual CGT exempt amount | £3,000 |
| Dividend tax: basic / higher / additional | 10.75% / 35.75% / 39.35% |
| Dividend allowance | £500 |
Two points most guides miss:
- BADR now matches the basic CGT rate. It only saves tax for higher-rate taxpayers (18% instead of 24%).
- Dividends can win for basic-rate directors. Small amounts that stay inside your basic-rate band are taxed at 10.75% as dividends, against 18% as capital gains. Spreading dividends over tax years before closing may help, so ask your accountant.
Business Asset Disposal Relief when closing
BADR can cut your CGT rate on qualifying gains, up to a £1 million lifetime limit. For a company shareholder you must, for at least two years before the disposal:
- be an employee or office holder
- hold at least 5% of the shares and voting rights
- own shares in a trading company
If the company stops trading, you can still qualify if you dispose of your shares within three years.
The rate has risen twice: from 10% to 14% in April 2025, then to 18% in April 2026. Future rates are set at Budgets, so check GOV.UK before you act. You claim BADR through Self Assessment, so register for Self Assessment if you are not already.
Worked example: strike-off vs MVL (2026/27)
Priya is the sole director and shareholder. Her company holds £80,000 of retained profit. She has a £60,000 salary elsewhere, so she is a higher-rate taxpayer and qualifies for BADR. Assume her shares cost almost nothing.
| Strike-off | MVL | |
|---|---|---|
| Dividend before closing | £55,000 | £500 |
| Dividend tax | £19,484 | £0 |
| Left to distribute as capital | £25,000 | £79,500 |
| Gain after £3,000 exemption | £22,000 | £76,500 |
| CGT at 18% | £3,960 | £13,770 |
| Liquidator fee (estimate) | £0 | £2,000 |
| Total tax and fees | £23,444 | £15,770 |
The MVL saves about £7,674. The dividend tax is £54,500 (after the £500 allowance) at 35.75%. In practice the liquidator’s fee comes out of company funds, so the real gain is slightly lower.
With only £20,000 retained, the gap vanishes. Strike-off gives a £17,000 gain and £3,060 of tax with BADR, and there is no liquidator to pay.
Anti-avoidance rules to know
HMRC can tax MVL distributions as income instead of capital under the Targeted Anti-Avoidance Rule (TAAR). It applies when all of these are true:
- You held at least 5% of the company before winding up.
- It was a close company in the previous two years.
- You carry on the same or a similar trade within two years of the distribution.
- Avoiding Income Tax was a main purpose.
Separate Transactions in Securities rules can also apply if the closure looks designed to turn income into capital. Keep a record of your genuine commercial reasons. If you plan to start a similar business soon, an MVL may not save you anything.
Which route should you choose?
| Your situation | Likely best route |
|---|---|
| £25,000 or less left, no debts | Strike-off |
| Well over £25,000 left, closing for good | MVL |
| Over £25,000 left, starting a similar business within two years | Strike-off, with advice (TAAR risk) |
| Cannot pay creditors | CVL |
| Never traded, no cash | Strike-off, nil tax |
Common mistakes
- Skipping the final CT600 and accounts for HMRC
- Leaving cash in the bank, which goes to the Crown
- Trading, or changing the company name, in the three months before applying
- Taking £30,000 as a “capital” distribution under strike-off
- Forgetting VAT deregistration or final payroll
- Ignoring TAAR when starting a similar business
- Leaving an overdrawn director’s loan unresolved (tax charges can follow)
Directors stay responsible until the company is dissolved. Our guide to company director responsibilities covers what that means.
After the company is closed
Keep bank statements, invoices and receipts for seven years. If you had staff, keep employers’ liability insurance papers for 40 years. A struck-off company can only be restored by court order. Restoration is generally not possible after six years.
Could you sell instead of closing?
If the business still has value, a sale may beat a closure. You would pay CGT on your shares, but a buyer pays you for the goodwill. See how to sell a small business and business succession planning if you are retiring.
FAQs
Do I pay tax when I close a limited company?
Yes, usually. The company pays Corporation Tax on final profits. You pay CGT or Income Tax on money you take out. A company that never traded and holds no cash owes nothing.
How much tax do I pay on £25,000 in a strike-off?
After the £3,000 exemption, £22,000 is taxable. With BADR at 18% that is £3,960. At 24% without BADR it is £5,280.
Is an MVL worth the cost?
Usually when retained profits are well above £25,000 and you will not start a similar business within two years. Fees start at around £1,500–£2,000.
How long does a strike-off take?
Companies House publishes a notice, and the company is struck off after two months if nobody objects. A second notice then confirms dissolution.
Can I strike off a company with unpaid tax?
No. Settle your debts and Corporation Tax first. If the company cannot pay, you need a liquidation.
