Restructuring and demergers

A reorganisation is any change to how a company or group is owned or structured, such as inserting a holding company, moving businesses or property between companies, splitting a group through a demerger, or changing share rights. Tax rules allow many reorganisations to happen without an immediate tax charge, provided the conditions are met and the reorganisation is for genuine commercial reasons.

Common reasons are to keep property or another business the buyer does not want, to protect reliefs such as Business Asset Disposal Relief or the Substantial Shareholding Exemption, and to deal with surplus cash. Restructuring can also make a company easier to sell and simplify due diligence. Done in good time, it can improve what the sellers keep. Done in a rush, it can create new risks.

The usual tools are a share-for-share exchange to insert a holding company, transfers of assets or businesses between group companies, demergers to split a group between shareholders, capital reductions, and company buy-backs of shares. Each has its own tax rules and some need HMRC clearance. Often several are combined, so the order of the steps matters as much as the steps themselves.

Often yes. Capital gains tax, corporation tax and stamp taxes all have rules that can allow a reorganisation to happen without an immediate charge. Each rule has its own conditions, and the reliefs for shareholders usually require the arrangement to be for genuine commercial reasons rather than mainly to avoid tax. A clearance from HMRC is often used to confirm the position before the steps take place.

These are the main clearances used in restructuring. Section 138 TCGA 1992 confirms the capital gains tax deferral on a share exchange or reconstruction is available. Section 701 ITA 2007 confirms the transactions in securities rules should not apply to turn a capital receipt into income. Section 1091 CTA 2010 confirms an exempt distribution on a statutory demerger. HMRC responds within 30 days.

Many restructuring reliefs only apply if the arrangement is for genuine commercial reasons and not mainly to avoid tax. Separate rules can also treat cash or value taken out of a company as income rather than capital. If HMRC decides these rules apply, the expected relief can be lost. Clear commercial reasons, documented before the steps happen, and an advance clearance are the main protections.

Buyers often do not want to pay for property, owners may want to keep it as a long-term investment or pass it to family, and holding property in a trading company can put trading status and reliefs at risk. Moving property out in the wrong way can trigger capital gains tax, income tax, stamp duty land tax or all three, so the route needs careful planning.

Yes. A restructure can split a business between family members who want to go separate ways, separate the parts the next generation will run from the parts that will be sold or kept as investments, or create different classes of shares to pass on value while the current owners keep control. Inheritance tax and Business Relief need to be considered alongside capital gains tax.

A hive-down is where a company transfers its trade or particular assets into a new subsidiary. It is often used to separate the part of a business a buyer wants, so the buyer can acquire a clean company. Group rules can allow the transfer without an immediate corporation tax charge, but the tax position on the later sale of the subsidiary needs checking carefully before going ahead.

Usually the commercial aim is agreed first, then the tax route, valuations and any HMRC clearance applications, followed by the legal steps. Clearance should normally be obtained before the steps are carried out. Steps done in the wrong order, or too close to a sale, can lose reliefs or trigger charges. A written step plan that lawyers and accountants can follow helps avoid mistakes.