Demerger FAQs

Common reasons include separating valuable property from the risks of a trading business, letting shareholders who want different things go their separate ways, preparing one business for sale while keeping another, and dividing a family group between the next generation. A demerger can do this while the shareholders keep ownership, rather than selling assets out of the company.

Often, yes, where the conditions for the reliefs are met. The main capital gains, corporation tax, income tax and stamp tax reliefs each have their own conditions and anti-avoidance rules, and HMRC clearance is usually obtained first. Some demergers still carry a small cost, such as stamp duty where a relief isn't available, so each case needs checking.

There are four broad routes: a statutory demerger under sections 1075 to 1099 CTA 2010; a capital reduction demerger using the Companies Act 2006; a liquidation demerger under section 110 of the Insolvency Act 1986; and a partition demerger, which splits a group between shareholders using one of the other methods. Many also start by inserting a new holding company.

There isn't a single best route. A statutory demerger is often simplest, but only works where the businesses are trading and no sale to outsiders is planned. Property investment usually calls for a capital reduction or liquidation demerger. The choice depends on what's being separated, the reserves, the shareholders and any sale, so it's worth comparing options with an adviser.

Usually, yes. A property can be moved into a separate company owned by the same shareholders, leaving the trading company free of it. Because letting property is normally an investment activity, a statutory demerger often won't work, so a capital reduction or liquidation demerger is commonly used, often after inserting a new holding company.

Because it can be expensive. Distributing a property to shareholders is normally treated as a disposal at market value by the company, which may create a corporation tax charge, and as a dividend in specie for the shareholders, taxed as income. A properly structured demerger can often avoid both, where the conditions are met.

Clearance isn't a legal requirement for every step, but it's usually sought before a demerger. It gives certainty that HMRC accepts the transactions aren't mainly about avoiding tax, so the reliefs should apply. Depending on the route, applications may be made under section 138 TCGA 1992, section 701 ITA 2007, section 1091 CTA 2010 or other provisions.

For the main statutory clearances, HMRC must normally give its decision within 30 days of receiving a complete application. If it asks for more information within that period, the 30 days run again from when you provide it. Several clearances can usually be requested in a single application to HMRC's clearance team.

Usually a few months, depending on the route and how quickly information is available. The main stages are design, preparing and submitting the clearance application, HMRC's response, then the legal steps and filings. A liquidation demerger tends to take longer because a liquidator must be appointed and the company wound up.

Not usually at the time, where the conditions are met. The shareholders' new shares are generally treated as taking the place of their old ones, so any gain is deferred until they later sell. That depends on reorganisation and reconstruction rules in TCGA 1992 and on the anti-avoidance rules not applying, which is why clearance is sought.

Not necessarily. Transfers between companies in a qualifying reconstruction, or within a capital gains group, can take place on a no gain, no loss basis, so no corporation tax arises on the transfer. Degrouping charges and other rules also need to be checked, especially if a company leaves a group within six years of receiving an asset.

It can be. Transfers of shares can attract stamp duty at 0.5%, and transfers of land into a new company can attract SDLT in England and Northern Ireland. Reliefs exist for share-for-share acquisitions, reconstructions and group transfers, but they have strict conditions and clawback periods, often three years, so planning matters.

Yes, but it needs careful planning. A statutory demerger can't be part of arrangements for outsiders to take control, and some stamp duty and SDLT reliefs can be withdrawn if control of a company changes within a set period. A planned sale must be disclosed to HMRC in any clearance application. Speak to an adviser before agreeing terms with a buyer.

Yes. This is often called a partition demerger. Each shareholder or group of shareholders ends up owning a separate company, broadly reflecting the value of their current stake. Getting the values right matters, because the reliefs generally depend on each person receiving value in line with their shareholding. An independent valuation is often needed.

Often, though not always. Inserting a new holding company through a share-for-share exchange can put the group in the right shape for the later steps, for example a capital reduction at the top of the group. The exchange itself can usually be done without capital gains tax or stamp duty, where the conditions for relief are met.

It can help or harm, depending on the facts. Removing investment property can help a company qualify as trading for the relief. But the conditions, including trading status and a 5% shareholding, must generally be met throughout the two years before a sale, and how new shares are treated after a reorganisation needs checking for each shareholder.

Some routes need them. A direct statutory demerger is a distribution, so the company must have enough distributable reserves to make it lawfully. A capital reduction can create reserves where there aren't enough. A liquidation demerger works differently, through the liquidator. Your accountant's figures are therefore an early part of the planning.

Often, yes. Loan agreements and security over property usually restrict transfers of assets and changes in group structure, so lenders may need to consent or refinance. Leases, contracts and licences can also need consent. These are commercial and legal points rather than tax ones, but they can affect the timetable.

It can be part of it. Separating a trade from investment property, or splitting a group between family members, can change which assets qualify for Business Relief. Since 6 April 2026, 100% relief applies only to the first £2.5m of combined qualifying business and agricultural property per person, so the effect of a demerger should be checked.

It depends on the route, the number of companies and properties, whether a liquidator is needed and how complex the clearances are. Costs usually include tax advice, legal work and accounting, plus any unavoidable stamp taxes. We confirm the scope in writing before starting, so you know what's involved. We don't publish fees, because each case differs.

A demerger splits one company or group into two or more separate companies, usually owned by the same shareholders. It's used to separate a trade from property, to split two different businesses, or to let shareholders go their separate ways. Done properly, reliefs can mean the split itself triggers no immediate capital gains tax, corporation tax, income tax or stamp duty, but the conditions are strict, so the route and the order of the steps matter.

Often, yes, where the conditions for the reliefs are met. Shareholders can usually treat their new shares as a continuation of the old ones, companies can transfer assets without a chargeable gain, and stamp duty and SDLT reliefs can apply. Each relief has conditions and anti-avoidance rules, and some can be clawed back if things change afterwards. That's why HMRC clearance is normally obtained before anything moves.

There are four main routes. A statutory demerger, under the Corporation Tax Act 2010, for trading businesses. A capital reduction demerger, which uses a reduction of share capital and works for property and investment businesses. A liquidation demerger under section 110 of the Insolvency Act 1986. And a partition, where shareholders each take a different business, usually using one of the last two routes.

It depends on what's being separated, who will own each part, whether a sale is planned, and the company's reserves. A statutory demerger only works where both sides are trading. Separating investment property usually needs a capital reduction or liquidation demerger. Our free route finder gives you an indication in about two minutes, and we can confirm the right route on a call.

Clearance isn't compulsory, but for almost every demerger it's strongly advisable. It confirms in advance that HMRC accepts the reliefs apply, and that avoiding tax is not a main purpose of the transaction. Several clearances can be requested in a single application, and HMRC must respond within 30 days of a complete one. Buyers, lenders and lawyers often expect to see clearance before relying on the structure.

Most demergers take two to four months from first advice to completion. The main stages are the feasibility work and step plan, HMRC clearance (30 days from a complete application, longer if HMRC asks questions), and the legal steps such as board and shareholder resolutions, solvency statements and filings. A liquidation demerger can take longer because a liquidator is involved.

It depends on the route, the size of the group and how many advisers are involved, so we don't publish fees. A demerger usually needs tax advice and clearance applications, legal work from a corporate solicitor, and sometimes valuations or a liquidator. After a short call we'll give you a clear, fixed proposal for the tax work, so you know the cost before committing.

Yes. Separating property from a trading business is one of the most common reasons to demerge. It can protect the property from the trading risks, allow the trade to be sold while the family keeps the property, or make succession simpler. Because property investment isn't a trade, a statutory demerger usually isn't available, so a capital reduction or liquidation demerger is normally used.

Yes. This is called a partition. Each shareholder or family takes a different business or set of assets, and the company is split accordingly. With the right route, valuations and clearances, it can often be done without immediate tax charges. The reliefs have extra conditions where shareholders end up owning different businesses, so the steps need careful planning.

Sometimes, but this is where most demerger problems start. Several reliefs are denied or withdrawn if a sale is already arranged, or if the demerger is mainly to save tax on the sale. The timing, the commercial reasons and what's been agreed with the buyer all matter. If a sale is on the horizon, talk to us before any discussions with a buyer go further.

It can. Shares received in a demerger usually inherit the history of the old shares, but whether Business Asset Disposal Relief is available on a later sale depends on the new company being a trading company and you meeting the conditions for two years before the sale. Separating investment property out of a trading company can also help the trading company meet the trading tests.

Usually capital gains tax for the shareholders, corporation tax on chargeable gains for the companies, income tax if any step is treated as a distribution, stamp duty on share transfers, and SDLT (or the Welsh or Scottish equivalents) where land moves. Degrouping charges, VAT on any transfer of a business, and the effect on future reliefs such as Business Relief for inheritance tax also need checking.

Just a conversation. It helps to have the latest accounts, a simple group structure chart, a list of shareholders and their holdings, and an idea of what you want to separate and why. If a sale, refinancing or family change is planned, tell us about it at the start, as it affects which route will work.

Demerger Tax is a specialist practice advising UK companies and their shareholders on demergers and reorganisations. Advice is led by a Chartered Tax Adviser, supported by a Big 4-trained team that includes ICAEW and ACCA Chartered Accountants. We've obtained 100% of the HMRC clearances we've applied for, across more than 50 applications. We're the demerger practice of the team behind Transaction Tax Partners.

Yes, and we prefer to. We focus only on the tax side of the demerger, so we don't compete with your accountant for compliance work or with your solicitor for the legal documents. We prepare the step plan and clearance applications, and work alongside them so everyone follows the same plan.

The same working day. Send an enquiry, email or WhatsApp message and a senior adviser will reply the same working day. The first conversation is confidential and without obligation.

Usually not at the time, where the demerger is structured to meet the conditions. Shareholders who receive shares in a new company in place of, or alongside, their existing shares are normally treated as if nothing had been sold. The gain is effectively deferred until they later sell the shares. This depends on reliefs such as section 136 TCGA 1992, which have conditions and an anti-avoidance rule.

Section 136 applies where, as part of a scheme of reconstruction, a new company issues shares to the shareholders of the original company in proportion to their holdings. The shareholders are treated as exchanging their original holdings for the new shares, and the share reorganisation rules then apply as if the two companies were the same. So no disposal arises, and the original base cost carries across.

It's defined in Schedule 5AA TCGA 1992. In outline, the new company issues ordinary shares only to the ordinary shareholders of the original company, shareholders in the same class are treated equally, and the business of the original company continues, in whole or substantially in whole, in the successor company or companies. A court-approved arrangement is an alternative to the business continuity condition.

For a direct statutory demerger, where a company distributes shares in its subsidiary to shareholders, section 192 TCGA 1992 says the distribution isn't a capital distribution and treats it as a reorganisation of share capital. For an indirect demerger, HMRC's guidance is that the reconstruction relief in section 136 normally applies instead. Either way, the shareholders usually have no disposal at the time.

There can be, so it needs planning. Where a business moves from one company to another under a scheme of reconstruction, section 139 TCGA 1992 can treat the transfer as made at no gain and no loss, so the receiving company takes over the original cost. Where a company distributes shares in a subsidiary, it is disposing of them, so whether a gain arises, and whether an exemption covers it, needs checking.

Sometimes. Section 139 needs the transfer of a business, or part of one. HMRC accepts that a controlling holding in a trading subsidiary counts as part of a parent company's business, but its guidance notes there may be a problem where a subsidiary only holds investments or property. Whether a property holding is a business in its own right depends on the facts, so it's examined early.

For transactions from 26 November 2025, sections 137 and 139 TCGA 1992 contain a main purpose test. If a main purpose of the arrangements is to reduce or avoid tax, HMRC can make just and reasonable adjustments, including denying the relief. This replaced the older bona fide commercial reasons test. HMRC says deferral alone, consistent with the purpose of the reliefs, is not treated as a tax advantage.

Your original base cost is shared between your shares in the original company and your new shares, in proportion to their market values. For unquoted shares, HMRC's guidance is that the split is made using market values at the date of the later disposal that requires the calculation. For quoted shares, values on the first day of quotation are used. Keeping good valuation records helps later.

If a company acquired an asset from another group company at no gain and no loss, and then leaves the group within six years still owning it, section 179 TCGA 1992 can treat it as having sold and reacquired the asset at market value at the time it received it. Demergers move companies out of groups, so any earlier intra-group transfers, and transfers made as part of the demerger itself, need checking.

For statutory demergers, yes. Section 192 TCGA 1992 says the degrouping charge doesn't apply where a company leaves a group only because of an exempt distribution, unless a chargeable payment is made within five years. For other routes, there's no blanket exemption, although other rules can help, for example where associated companies leave together, or where the gain is added to share sale proceeds covered by SSE.

Possibly. Your new shares are usually treated as the same asset as your original shares, acquired when you acquired those. But the BADR conditions, including the company being your personal company and a trading company, and you being an officer or employee, are applied to the company whose shares you sell, throughout the two years before the sale. Where that company is new, this needs checking carefully.

This is an area to check on the facts rather than assume. The legislation contains an express rule carrying back the conditions to the original company for EMI shares after a reorganisation, but there is no equivalent general rule for ordinary shares. If you might sell within two years of a demerger, or the demerged company is newly formed, the BADR position should be reviewed before the demerger, not after.

Yes. Section 169Q TCGA 1992 allows an election that disapplies the normal no-disposal treatment for a reorganisation, so a gain arises at that point and BADR can be claimed on it if the conditions are met then. It applies to all the shares in the reorganisation, not some of them. It can make sense where you might not qualify for BADR on the new shares later.

For individuals in 2026/27, gains are taxed at 18% within the basic rate band and 24% above it, after the £3,000 annual exempt amount. Business Asset Disposal Relief, where available, gives an 18% rate on up to £1m of lifetime qualifying gains. Companies pay corporation tax on gains instead. A well-structured demerger aims to avoid any charge arising at the time.

It's usually sensible. A clearance under section 138 TCGA 1992 confirms HMRC's view that the section 137 anti-avoidance rule won't apply to the share exchange or reconstruction. A clearance under section 139(5) does the same for the transfer of a business between companies. Both can be included in a single application with the other clearances a demerger needs.

Cash, or anything other than shares, falls outside the share-for-share reliefs, so it can be a disposal of part of the shareholding and taxed as a capital gain, or treated as income in some cases. It may also put the reliefs in question if it affects the scheme of reconstruction conditions. Where value needs balancing, it's usually better done inside the companies before the split.

Because a demerger usually involves a company passing value to its shareholders, or to a company they own, in respect of their shares. Under section 1000 CTA 2010, a distribution out of a company's assets in respect of shares is generally a distribution, unless it represents a repayment of capital or is matched by new consideration. Without the right structure, shareholders could be taxed on the value as dividend income.

For 2026/27, dividends above the £500 dividend allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. On a demerger of a valuable business or property, that could be a very large bill on value that never reached the shareholders in cash. Avoiding an income distribution is therefore one of the first design points.

It's a distribution that qualifies under the statutory demerger rules in CTA 2010, running from section 1073. An exempt distribution is not a distribution for the purposes of the Corporation Tax Acts, and HMRC's guidance confirms it isn't income of the shareholders. It's available where trading activities are divided between companies or groups and the conditions in sections 1081 to 1085 are met.

In a direct demerger under section 1076 CTA 2010, a company transfers shares in one or more 75% subsidiaries straight to its shareholders. In an indirect demerger under section 1077, the company transfers a trade, or shares in 75% subsidiaries, to one or more other companies, often newly formed, which issue their own shares to the original company's shareholders. Each has its own additional conditions.

The main ones in section 1081 CTA 2010 are that the companies are UK or EU resident, the distributing company and the demerged subsidiaries are trading companies or in trading groups, and the distribution is made wholly or mainly to benefit the trading activities. It also mustn't be part of arrangements with a main purpose such as avoiding tax, an outsider gaining control, or a trade being sold or ceasing.

The exempt distribution rules are designed for dividing trading activities. The distributing company must be a trading company or member of a trading group, and any subsidiary demerged must be a trading company or the holding company of a trading group. Letting property is normally an investment activity rather than a trade, so a property company usually can't be demerged this way, and another route is needed.

Broadly, a payment made within five years of an exempt distribution by a company involved in it, to one of the members, in connection with their shares, that isn't made for genuine commercial reasons or forms part of a tax avoidance scheme. Normal distributions and payments within a group are excluded. A chargeable payment is taxed as income in the recipient's hands and isn't deductible for the company.

A distribution excludes any part that represents a repayment of capital on the shares. A capital reduction demerger uses this: the value passing to the new company is matched by a reduction of share capital rather than paid out of profits. Whether that works depends on how the share capital was created and the exact steps, which is a central part of designing the route.

Generally not for the shareholders' receipt itself. A distribution made in respect of share capital in a winding up is not treated as an income distribution under section 1030 CTA 2010, so it falls under the capital gains rules instead. In a section 110 liquidation demerger, shareholders usually receive shares in new companies, and the capital gains reconstruction relief can then apply where the conditions are met.

They are anti-avoidance rules in Part 13 Chapter 1 of ITA 2007. They can apply where a person is party to a transaction in securities involving a close company, receives value that represents company reserves without paying income tax on it, and a main purpose is to obtain an income tax advantage. HMRC can then counteract the advantage, typically by taxing the receipt as income.

They can, because a demerger is a transaction in securities and usually involves close companies. The rules are aimed at turning what would be dividend income into capital or tax-free value, so the risk is highest where shareholders receive cash or assets, or where a sale follows. Most demerger clearance applications include section 701 ITA 2007, so HMRC confirms in advance that it won't use these rules.

The transactions in securities rules don't apply where there is a fundamental change of ownership of the close company, broadly where the original shareholders and their associates end up with no more than 25% of the ordinary share capital, the rights to distributions and the votes. It's mainly relevant to a sale to a third party rather than to the demerger itself, where the same shareholders usually remain.

It's the clearance under the corporation tax version of the transactions in securities rules, which apply to companies obtaining a corporation tax advantage. It's relevant where a shareholder that is itself a company receives value in a demerger. Like the section 701 ITA 2007 clearance for individuals, it can be included in the same application as the other demerger clearances.

They can, but it changes the tax picture. Cash paid to shareholders is outside the share-for-share and exempt distribution reliefs, and may be taxed as a dividend, as a capital gain, or under the transactions in securities rules if it represents company reserves. It can also put other reliefs at risk. If cash needs to come out, it's usually best treated as a separate, clearly explained step.

An exempt distribution is not a distribution for corporation tax purposes, so it isn't taxed as such. But separate corporation tax points can still arise, such as gains on assets or shares transferred, degrouping charges and the treatment of any intra-group balances. These are covered by other reliefs where the conditions are met, and are checked as part of the overall plan.

By obtaining HMRC clearance before any step. For a statutory demerger, a section 1091 CTA 2010 clearance confirms that the distribution will be exempt. A section 701 ITA 2007 clearance confirms that the transactions in securities rules won't be applied. These are combined with the capital gains clearances in a single application, and HMRC should respond within 30 days of a complete application.

It can be, because many demergers involve transferring shares for consideration. Stamp duty on a transfer of shares is 0.5% of the consideration, rounded up to the nearest £5. Reliefs under the Finance Act 1986 can remove the charge on reconstructions and share-for-share exchanges where the conditions are met. Some steps, such as a dividend paid directly in shares, may involve no consideration and so no duty.

Section 75 of the Finance Act 1986 relieves stamp duty where a company acquires the whole or part of another company's undertaking in exchange for issuing non-redeemable shares to all of that company's shareholders. Afterwards, each shareholder of each company must be a shareholder of the other, in the same proportions. The acquisition must be for bona fide commercial reasons and not mainly to avoid tax.

Section 77 of the Finance Act 1986 relieves stamp duty on a share-for-share exchange, such as inserting a new holding company. The new company must acquire the whole of the target's issued share capital for shares only, and the shareholdings must mirror the old ones, class by class and in the same proportions. It must be for bona fide commercial reasons and there must be no disqualifying arrangements.

They are arrangements where it's reasonable to assume that a purpose is for a particular person, or particular persons together, to obtain control of the new holding company. If they exist, section 77 relief is denied. A person who has held at least 25% of the target throughout the relevant period is excluded. This rule commonly matters where a holding company insertion is the first step of a partition or a sale.

Often only in part. Section 75 relief needs the same shareholders, in the same proportions, in both companies afterwards, which is exactly what a partition doesn't produce. HMRC's guidance also gives examples where section 77 relief is denied because of arrangements for particular shareholders to gain control. Some stamp duty may therefore be payable, and it should be costed when the route is chosen.

The relevant documents are sent to HMRC's Stamp Taxes team for adjudication, which is compulsory to obtain section 75 or section 77 relief. HMRC checks the conditions and confirms the position, now usually by letter rather than a physical stamp. Once adjudicated, the stamp duty status of that document is settled. The claim needs supporting information, so it's prepared alongside the legal documents.

It can be. A transfer of land to a connected company is normally treated as made for at least market value, so SDLT could apply on the full value of the property even if no money changes hands. Reliefs in Schedule 7 to the Finance Act 2003 can remove or reduce the charge where the conditions are met, which is why SDLT is planned early.

For non-residential and mixed-use freehold property in England and Northern Ireland, SDLT is 0% on the first £150,000, 2% on the portion from £150,001 to £250,000, and 5% above £250,000. On a valuable commercial property that adds up quickly, which is why reliefs matter on a demerger. Residential property has different rates and rules, so it needs checking separately.

Group relief exempts a transfer of land between companies in the same group, broadly where one is a 75% subsidiary of the other or both are 75% subsidiaries of a third company. It isn't available where there are arrangements for the buyer company to leave the group, for someone to gain control of it but not the seller, or for outside parties to provide the consideration. Those arrangements are common in demergers.

If the company that received the property leaves the seller's group within three years of the transfer, or later under arrangements made in that period, while still holding the property, the relief can be withdrawn and SDLT becomes payable. The relief isn't withdrawn just because the seller leaves the group, but a later change in control of the buyer can then trigger the clawback.

Reconstruction relief, in Part 2 of Schedule 7, exempts land transferred as part of a reconstruction where the acquiring company issues non-redeemable shares to all the target's shareholders, and afterwards each shareholder holds both companies in the same proportions. It must be for bona fide commercial reasons and not mainly to avoid tax. Because of the mirror-image requirement, it doesn't usually help on a partition.

Acquisition relief limits SDLT to 0.5% of the chargeable consideration where a company acquires an undertaking in exchange for shares issued to the target company or to all or any of its shareholders. The undertaking's main activity must be a trade that isn't mainly dealing in land, and there are limits on cash consideration. That trade condition means it rarely helps where the business being moved is property investment.

Yes. If control of the acquiring company changes within three years of the transfer, while it still holds the property, the relief can be withdrawn and SDLT becomes due. That matters if a sale of the company, or a further reorganisation, is planned soon after the demerger. Clawback periods should be checked against any sale timetable before the demerger goes ahead.

Yes. Group, reconstruction and acquisition reliefs are claimed on the SDLT return, which must be filed, with any tax paid, within 14 days of completion. A relief doesn't remove the need to report the transaction. HMRC can enquire into the claim afterwards, and there's no statutory advance clearance for SDLT, so the analysis needs to be right before completion.

SDLT only applies in England and Northern Ireland. Property in Scotland is subject to land and buildings transaction tax, and property in Wales to land transaction tax. Both have their own rates and their own versions of group and reconstruction reliefs, with differences in the detail. A demerger involving property across the UK needs each regime checked separately.

Occasionally. Where reliefs aren't available, for example on a partition involving valuable property, stamp duty and SDLT can be a significant cost. Often the steps can be ordered or structured so the reliefs do apply, but not always. We cost the stamp taxes for each realistic route at the start, so you can decide with the full picture rather than discover it at completion.

A demerger splits one company or group into two or more separate companies, usually owned by the same shareholders, or by different shareholders in a partition. It is used to separate a trading business from property, to split two trades, or to let shareholders go their own way. Done properly, a demerger can often be carried out without immediate capital gains tax, corporation tax or income tax, but only where the conditions of the reliefs are met and the route suits the facts.

The most common reasons are separating valuable property from the risks of a trading business, preparing one part of a group for sale while keeping the rest, letting shareholders who disagree take different businesses, and passing different parts of the business to different family members. Lenders and investors also sometimes prefer a cleaner structure. HMRC expects a genuine commercial reason, so the reason for the demerger should be clear and written down from the start.

It can often be tax neutral, which means no tax is paid at the time of the demerger and gains are deferred into the new shares. That depends on several reliefs applying together, each with its own conditions and anti-avoidance rules, for capital gains tax, corporation tax, income tax, stamp duty and stamp duty land tax. A badly ordered step can lose a relief, so the route and sequence are planned before anything is signed, and HMRC clearance is usually obtained first.

There are four main routes. A statutory demerger uses the exempt distribution rules in the Corporation Tax Act 2010 and only suits trading businesses. A capital reduction demerger uses a reduction of share capital under the Companies Act 2006. A liquidation demerger uses section 110 of the Insolvency Act 1986. A partition is any of these used so that different shareholders end up owning different businesses. Many demergers start by inserting a new holding company.

Usually a capital reduction demerger or a liquidation demerger. A statutory demerger is only available where the businesses involved are trading, and the legislation excludes dealing in land and holding investments from what counts as a trade, so a property investment business normally cannot be separated that way. The choice between the other two routes depends on reserves, lenders, the shareholders' plans and the stamp duty and SDLT position.

Most private company demergers take a few months from first call to completion. The timetable is driven by the facts we need to gather, valuations, the HMRC clearance application and the legal documents. HMRC must reply to statutory clearance applications within 30 days of receiving a complete application, and further questions can extend that. A liquidation demerger can take longer at the end, because the liquidator has to finish the winding up before the old company is dissolved.

Clearance is not compulsory, but for almost every demerger it is sensible. Several reliefs have a main purpose or commercial reasons test, and clearance gives advance confirmation that HMRC accepts the demerger is commercially driven rather than tax driven. The usual applications are under section 1091 CTA 2010 for statutory demergers, sections 138 and 139(5) TCGA 1992, and section 701 ITA 2007. They can be made together in one application to HMRC's clearance team.

Sometimes, but this is where demergers most often go wrong. A statutory demerger is not available if a main purpose is a sale of a trade or a change of control after the distribution, and other routes have anti-avoidance rules that look at arrangements already in place. Stamp duty and SDLT reliefs can also be refused or clawed back. If a sale is planned or likely, tell your adviser at the outset so the demerger and the sale are designed together.

In a sale, a buyer pays for the shares or assets, and tax is normally due on any gain. In a demerger, the business is separated but stays with the existing shareholders, who receive shares in the new company instead of cash. Because no cash leaves the structure, reliefs can often defer the tax. Demergers are often done before a sale, so the business being sold is cleanly separated from the part the owners want to keep.

Usually a tax adviser to design the route and obtain clearances, a corporate lawyer to draft the resolutions, share documents and transfers, and your accountant to prepare the accounts, reserves figures and valuations. A licensed insolvency practitioner is needed for a liquidation demerger, and a conveyancer where land moves. Lenders and landlords may need to consent. We coordinate with your existing advisers and give them a clear step plan, rather than replacing them.

Not usually, where the route qualifies. For a statutory demerger the new shares are treated as a reorganisation of the shareholders' existing holding. For capital reduction and liquidation demergers, section 136 TCGA 1992 treats the new shares as standing in the shoes of the old ones, provided the scheme meets the definition of a reconstruction and the anti-avoidance rule does not apply. The base cost is then split between the holdings.

It can. If a company leaves a group holding an asset it acquired from another group member within the previous six years, a degrouping charge under section 179 TCGA 1992 may arise. A statutory exempt distribution switches this rule off where the company leaves only because of the distribution. In other routes the charge can sometimes be covered by the substantial shareholding exemption or avoided by careful ordering, which is why the group's history of intra-group transfers is checked early.

It can be, at 0.5% on shares transferred for consideration, unless a relief applies. Share exchanges can qualify for relief under section 77 Finance Act 1986, and transfers of an undertaking for shares under section 75, but both have conditions, including that shareholdings mirror one another and, for section 77, that there are no disqualifying arrangements for a change of control. Partitions are the area where stamp duty is most likely to be a real cost.

It can be. Where land or buildings move between companies, SDLT is charged unless a relief applies. Group relief, reconstruction relief and acquisition relief in Schedule 7 Finance Act 2003 may help, but each has conditions and can be withdrawn if, for example, the purchaser leaves the group or control changes within three years. Property often moves to a new company in a demerger, so the SDLT position needs to be worked out before the route is chosen.

Yes. A partition demerger can split a family company so that different family members or branches end up owning different businesses. This is often done alongside succession planning, and the inheritance tax position of each shareholder should be reviewed at the same time, because business relief depends on what each new company does. The capital gains tax reliefs require the shares to be issued on a fair, class-by-class basis, which shapes how the split is designed.

To begin, we need a group structure chart, the latest accounts for each company, the shareholders and their holdings, what is to be separated and who should own it afterwards, and the reason for the demerger. It also helps to know about any property, bank borrowing, intra-group transfers in the last six years and any plans to sell. From that we can tell you which routes are realistic and what the key tax risks are.

It depends on the route. A statutory demerger is a distribution, so the distributing company normally needs sufficient distributable reserves under company law. A capital reduction demerger creates a reserve by reducing share capital, which a private company can do using a directors' solvency statement. A liquidation demerger distributes assets in a winding up, so the usual dividend rules do not apply in the same way. Your accountant and lawyer will confirm the company law position on the actual figures.

It can. Business asset disposal relief on a later share sale has conditions that must be met for the two years before the sale, including the company being a trading company or holding company of a trading group and the shareholder holding at least 5%. Shares received in a qualifying reorganisation can generally carry over the holding period, but whether the new company meets the trading test depends on what it holds after the demerger. We review this before the route is chosen.

Not easily. Once shares have been cancelled, assets transferred and new companies registered, undoing the demerger would usually be a new transaction with its own tax consequences. Some reliefs also have clawback periods of several years. That is why the planning stage matters so much: the route, the reasons, the clearances and the future plans for each company are settled before the documents are signed, rather than corrected afterwards.

Lenders usually need to consent, because a demerger moves assets or shares that may be security for borrowing. Facilities may need to be split, refinanced or released, and cross-guarantees between group companies are often unwound. Lender requirements can affect the route, for example where a solvency statement or liquidation is involved. We recommend speaking to your bank early, and we can explain the proposed structure to them in plain terms.

We review the group and the objectives, compare the realistic routes, explain the tax position for the companies and shareholders, and recommend one. We then prepare the HMRC clearance applications, give the lawyers and accountants a step plan, review the documents for tax, and deal with stamp duty and SDLT filings and returns. Our advice is led by a Chartered Tax Adviser, and we stay involved until the last step is completed.

Usually yes, but the tax analysis is more involved. Non-UK resident shareholders may be taxed in their country of residence, and the UK can tax non-residents on disposals of interests in UK property-rich companies. Some UK reliefs also have residence conditions at company level, such as the statutory demerger requirement that each relevant company is UK resident or resident in a member State. Overseas shareholders should take local advice alongside ours.

A capital reduction demerger separates a business or property by reducing a company's share capital and using that reduction to pass the business to a new company owned by the shareholders. Typically a new holding company is inserted first, then it reduces its capital and transfers one business to a second new company, which issues shares to the shareholders. It is widely used by private companies because it works for property and investment businesses as well as trades.

Because it is flexible and avoids a liquidation. A private company can reduce its capital using a directors' solvency statement instead of going to court, so the process is relatively quick. Unlike a statutory demerger, it is not limited to trading businesses, so it can separate investment property. And unlike a liquidation demerger, it does not need a liquidator or a winding up. Those advantages make it the default route for many owner-managed groups.

A new holding company is usually inserted through a share-for-share exchange so that the shareholders hold a fresh company with a large share capital, reflecting the value of the group. That share capital can then be reduced to support the demerger. It also means the existing trading company, with its contracts, history and liabilities, does not need to reduce its own capital. The exchange is normally tax neutral for the shareholders where the conditions of section 135 TCGA 1992 are met.

A solvency statement is a statement by each director that the company can pay its debts now and over the following year. Under section 641 to 644 of the Companies Act 2006, a private company can reduce its share capital by special resolution supported by a solvency statement, without applying to court. The statement must be made not more than 15 days before the resolution, and it is a criminal offence to make one without reasonable grounds.

A reduction supported by a solvency statement only takes effect when the documents are registered at Companies House. Within 15 days after the resolution, the company must deliver a copy of the solvency statement and a statement of capital to the registrar. Until they are registered, the reduction has not happened, so the distribution that relies on it must wait. That timing point is built into the step plan so the steps happen in the right order.

Yes. Under the Companies (Reduction of Share Capital) Order 2008, a reserve arising from a reduction supported by a solvency statement is treated as a realised profit. That gives the company distributable reserves to support the transfer of the demerged business. Your lawyers and accountants confirm the actual figures and the accounts used, but this is the company law reason the route works even where the group has limited retained profits.

Typically three areas of relief work together. Section 136 TCGA 1992 can treat the shareholders' new shares as replacing their old ones, so no capital gain arises. Section 139 TCGA 1992 can treat the company's transfer of the business as a no gain, no loss disposal. Stamp duty and SDLT reliefs may cover transfers of shares and land. Each relief has conditions and anti-avoidance rules, and HMRC clearance is normally obtained first.

It should not be, where it is structured properly. The definition of a distribution in section 1000 CTA 2010 excludes amounts that represent a repayment of capital on the shares, and a distribution made on a reduction of capital can fall within that exclusion. The transactions in securities rules can still apply if the arrangements give shareholders an income tax advantage, which is why a clearance under section 701 ITA 2007 is usually included in the application.

Usually clearance under section 138 TCGA 1992 for the share exchange and reconstruction, under section 139(5) for the transfer of the business, and under section 701 ITA 2007 for transactions in securities. Where a company is a shareholder, section 748 CTA 2010 may be relevant instead. These can be made in a single application to HMRC, which must respond within 30 days of a complete application. Stamp duty and SDLT reliefs are claimed separately.

Stamp duty at 0.5% can arise twice: on the share exchange that inserts the holding company, and on the transfer of the demerged company's shares to the new company. Relief under section 77 Finance Act 1986 may cover the first, and section 75 the second, but both require shareholdings to mirror. Section 77 is also denied if there are disqualifying arrangements under section 77A for someone to obtain control of the new holding company.

Section 77A Finance Act 1986 treats arrangements as disqualifying if it is reasonable to assume a purpose is for a person, or persons together, to obtain control of the acquiring company. A planned demerger can create exactly that risk. Since 22 July 2020, a person who has held at least 25% of the target throughout the previous three years is excluded from this test, which helps many family and owner-managed companies. Whether it applies depends on who will control what.

Only if land or buildings move between companies. Where the demerged business is a company holding the property, its shares move and SDLT is not charged on a share transfer. If property is first moved between group companies, SDLT group relief may be denied where there are arrangements for the purchaser to leave the group, and reliefs can be withdrawn within three years. The order in which property moves is therefore critical.

It can, and it is a common preparatory step, but it needs care. The transfer may create SDLT, a capital gains degrouping charge if the subsidiary later leaves the group within six years, and VAT questions for commercial property. Group reliefs often do not work if the demerger is already planned, because there are arrangements for the company to leave the group. We map this out before any property moves, as it often drives the choice of route.

Usually a few months from first call to completion, depending on how quickly information and valuations are available and whether HMRC asks questions on the clearance application. HMRC must reply within 30 days of a complete application. The company law steps themselves can be completed quickly once clearance is in hand, but the solvency statement, resolutions and registration have their own timing rules, so they are scheduled carefully in the step plan.

Yes. With a reorganisation of shares into classes first, a capital reduction can pass different businesses to different shareholders. This is called a partition. The capital gains tax reliefs can still apply if each class is treated equally, but stamp duty relief on the transfer to the new company is usually unavailable because shareholdings will not mirror. Partitions need extra planning, particularly on valuations and stamp duty.

The main risk is the solvency statement. Each director must be able to support the opinion that the company can pay its debts now and over the following year, and making a statement without reasonable grounds is a criminal offence. Directors should see up-to-date management accounts and cash flow forecasts and take legal advice. The tax adviser does not sign the statement, but the step plan should give directors the information they need.

A holding company insertion puts a new company on top of an existing company. The shareholders transfer their shares in the existing company to the new holding company, and in return the holding company issues its own shares to them. Afterwards the shareholders own the holding company, and the holding company owns the original company. Where the conditions are met, this can be done without a capital gains tax charge for the shareholders.

Many demergers, particularly capital reduction demergers, start with a new holding company. The new company has share capital reflecting the value of the group, which can then be reduced to support the separation, and the original trading company does not need to change its own capital. It also creates a clean top company from which businesses or property can be split off. The insertion and the demerger are planned and usually cleared together.

A holding company can give flexibility before a sale. Surplus cash or property can sometimes be moved up to the holding company, and the holding company can sell the trading subsidiary rather than the shareholders selling their shares. That can bring the substantial shareholding exemption into play for the company, where its conditions are met. Whether this is the best approach depends on what the shareholders want to do with the proceeds.

Not usually. Section 135 TCGA 1992 treats a qualifying exchange as a reorganisation, applying sections 127 to 131. Under section 127, the new holding company shares are treated as the same asset as the old shares, acquired when and for what the old shares were acquired. No gain arises on the exchange, and the gain is deferred until the shareholder later disposes of the new shares.

Section 135 applies where the acquiring company holds, or will hold as a result of the exchange, more than 25% of the ordinary share capital of the target, or the greater part of its voting power, or where shares are issued under a general offer made on condition that the acquirer will have control. In a holding company insertion, the new company normally acquires 100% of the existing company, so these tests are usually met.

Section 137 TCGA 1992 can deny share exchange relief where a main purpose of the arrangements is avoiding capital gains tax or corporation tax. Section 138 lets the companies ask HMRC in advance to confirm it is satisfied that this rule will not apply. Clearance must be obtained before the new shares are issued, and only the acquiring company or the target company can apply. HMRC must respond within 30 days of a complete application.

No. Section 138 clearance only deals with the anti-avoidance rule in section 137. HMRC's guidance makes clear that clearance does not mean the relieving sections will actually apply; the technical conditions of section 135 still have to be met, and all other tax aspects are dealt with in the normal way. Clearance also relies on full and accurate disclosure. That is why the facts, steps and reasons are set out carefully in the application.

The transfer of shares to the holding company is a transfer on sale, so stamp duty at 0.5% would normally be due on the value. Section 77 Finance Act 1986 gives relief where the holding company acquires the whole of the target's share capital for shares only, the new shares mirror the old shares in classes and proportions, the acquisition is for bona fide commercial reasons, and there are no disqualifying arrangements under section 77A.

For section 77 relief, the holding company's share capital must mirror the target's immediately after the exchange. The new shares must be of the same classes, each class must make up the same proportion of the total, and each shareholder must hold the same proportion of each class as before. Changing the share structure at the same time as inserting the holding company can break this rule, so any restructuring of share classes is usually done separately.

It can. Section 77A Finance Act 1986 denies section 77 relief where there are disqualifying arrangements, broadly arrangements whose purpose is for a person or persons to obtain control of the holding company. A planned demerger or sale can create that risk. For instruments executed from 22 July 2020, someone who has held at least 25% of the target for the previous three years is disregarded, which removes the problem in many owner-managed companies.

Yes. Relief under section 77 is not automatic. The stock transfer form or other transfer document is submitted to HMRC with a claim for relief and supporting information, so that HMRC can confirm the relief and the transfer can be registered. HMRC guidance says stock transfer forms should be sent within 30 days of being signed and dated. We prepare and submit the claim as part of the process.

Generally the new shares stand in the shoes of the old shares, so the period of ownership carries over. There is also an election under section 169Q TCGA 1992 to treat the exchange as a disposal so that business asset disposal relief can be claimed on it, which can occasionally help where the new company would not qualify. Whether either is helpful depends on the shareholder's plans, and the relief's own conditions still have to be met at the time of the eventual sale.

It can be. The transactions in securities rules can counteract an income tax advantage obtained in connection with transactions in securities, and a share exchange is one. For example, if the holding company later pays cash to shareholders, HMRC may consider whether income has been turned into capital. Clearance under section 701 ITA 2007 is usually sought alongside section 138, and both can be made in a single application to HMRC.

Yes, but the holding company usually needs to issue shares that mirror the existing classes, both for the capital gains tax analysis and for stamp duty relief under section 77. Shareholders' rights, such as dividend rights and voting, are normally reproduced in the new articles. If the classes are to be changed, that is best done as a separate step. Employee share options and shareholder agreements also need to be reviewed and replicated.

Often yes. A new holding company can trigger change of control clauses in loan agreements, leases, customer contracts and licences, even though the ultimate owners have not changed. Lenders frequently need to consent and may ask the holding company to give guarantees. Your lawyers should review the key contracts early, so the insertion does not cause an unexpected default or renegotiation that delays the wider demerger or sale.

A liquidation demerger, often called a section 110 demerger, separates businesses by placing a company into members' voluntary liquidation. The liquidator transfers each business, or the shares in each subsidiary, to new companies, and those companies issue shares directly to the original shareholders. The old company is then dissolved. Where the conditions are met, capital gains tax reliefs mean the shareholders and the companies can often avoid an immediate tax charge.

Section 110 allows the liquidator of a company in voluntary winding up to transfer its business or property to another company and accept shares in that company as consideration, for distribution among the members. In a members' voluntary liquidation, the arrangement is sanctioned by a special resolution of the shareholders. It is the company law basis for a liquidation demerger and has been used for reconstructions for many years.

Yes. A liquidation demerger uses a members' voluntary liquidation, which is only available to a solvent company. The directors must make a statutory declaration of solvency, stating that the company will pay its debts in full, with interest, within a period of up to 12 months. If the company is insolvent, the process is a different type of liquidation with different rules, and a demerger of this kind would not normally be appropriate.

It is a formal statutory declaration by the directors under section 89 of the Insolvency Act 1986 that the company can pay its debts in full within a stated period of no more than 12 months. It must include a statement of the company's assets and liabilities and be made within the five weeks before the winding-up resolution, or on the same day before the resolution. Making it without reasonable grounds is a criminal offence.

A liquidation demerger can suit cases where the existing company is to disappear altogether, where there are several businesses to separate at once, or where the share capital and reserves make a reduction of capital difficult. Because assets pass in a winding up, distributable reserves are not needed in the same way. It can also be cleaner for certain partitions. The trade-off is the cost and formality of a liquidator, and a longer tail before dissolution.

The liquidator must be a licensed insolvency practitioner, appointed by the shareholders when they pass the winding-up resolution. The liquidator takes control of the company, carries out the section 110 transfers, deals with creditors and eventually closes the liquidation. Choosing an insolvency practitioner who regularly handles reconstructions makes the process smoother, and we work alongside them so that the transfers follow the agreed tax step plan.

Where the arrangement is a scheme of reconstruction, section 136 TCGA 1992 treats the shareholders as exchanging their old shares for the new shares in the successor companies, so no capital gain arises at that point. Their original base cost is apportioned across the new holdings. Section 137 can deny the relief where a main purpose is to avoid capital gains tax or corporation tax, which is why clearance under section 138 is usually obtained first.

Section 139 TCGA 1992 can treat the liquidator's transfer of the business to each successor company as taking place at no gain and no loss, so chargeable assets move without a corporation tax charge on the gain. The original company must receive nothing for the transfer other than the new company taking over liabilities, and residence conditions apply. Trading stock is outside section 139 and is dealt with under the normal rules.

No. Section 1030 CTA 2010 provides that a distribution in respect of share capital in a winding up is not a distribution for the purposes of the Corporation Tax Acts, so it is not a dividend. Income tax can still come into play through the transactions in securities rules, which look at whether shareholders obtain an income tax advantage. A clearance under section 701 ITA 2007 is usually included in the application to HMRC.

It is defined in Schedule 5AA TCGA 1992. Broadly, the successor companies must issue ordinary shares only to the holders of ordinary shares in the original company, shareholders of the same class must be treated equally, and the whole or substantially the whole of the original business must be carried on by the successor companies. A liquidation demerger is designed to meet these conditions so that sections 136 and 139 can apply.

Usually clearance under section 138 TCGA 1992 for the shareholders, section 139(5) TCGA 1992 for the transfer of the businesses, and section 701 ITA 2007 for transactions in securities, with section 748 CTA 2010 where a company is a shareholder. A statutory demerger clearance under section 1091 CTA 2010 is not relevant, because this route does not rely on the exempt distribution rules. The clearances are submitted together before the company goes into liquidation.

A shareholder who votes against the special resolution can serve a written notice of dissent within seven days under section 111 of the Insolvency Act 1986. They can then require the liquidator either not to carry out the arrangement or to buy their interest at an agreed or arbitrated price. In practice, liquidation demergers are planned with all shareholders in agreement, but the dissent right is something to bear in mind where relationships are strained.

Yes. When the liquidator moves companies out of the group, any company holding an asset it acquired from another group member within the previous six years may face a degrouping charge under section 179 TCGA 1992. HMRC's guidance on section 110 reconstructions flags this risk. It can sometimes be covered by the substantial shareholding exemption or managed by ordering, so the group's intra-group transfer history is checked before the route is confirmed.

The liquidator's transfers of shares or land to the successor companies are made in return for shares issued to the members, so stamp duty or SDLT can be charged unless a relief applies. Stamp duty relief under section 75 Finance Act 1986 and SDLT reconstruction relief need shareholdings to mirror. SDLT acquisition relief can cap the charge at 0.5% in some cases but needs a trading undertaking. Partitions usually do not mirror, so costs need modelling.

Once the liquidator has transferred the businesses, settled the liabilities and completed the formalities, the liquidation is closed and the company is dissolved. It no longer exists. Any contracts, licences, employees and bank accounts must have moved to the successor companies before then. This tail can take a while, but the successor companies trade normally from the date of transfer, so the shareholders do not usually need to wait for dissolution.

Where a business transfers as a going concern to a successor company, the employees usually transfer under the TUPE regulations, keeping their existing terms and continuity of employment. Information and consultation duties may apply. This is an employment law matter for your lawyers, but it affects the timetable and should be planned in. For tax, the payroll and PAYE arrangements for the new employer will also need to be set up before the transfer date.

A partition demerger splits a company or group so that different shareholders end up owning different businesses. For example, two shareholders who each own half of a company running two businesses could each walk away owning one business outright. It is usually carried out as a capital reduction demerger or a liquidation demerger. Where the conditions are met, capital gains tax can often be deferred, but stamp taxes and valuations need particular care.

In an ordinary, pro rata demerger, every shareholder owns the same percentage of each company afterwards. In a partition, the shareholders separate, with each person or family owning a different company. That difference matters for tax: several reliefs for stamp duty and SDLT require shareholdings to mirror, and partitions do not. The business split also has to be fair in value, or one shareholder could be treated as making a gift to the other.

Often, yes. HMRC's guidance confirms that a business can be divided and transferred to companies that issue shares to different groups of shareholders, and still be a scheme of reconstruction. Section 136 TCGA 1992 can then treat each shareholder's new shares as replacing their old ones, and section 139 can treat the business transfers as no gain, no loss. The anti-avoidance rule in section 137 applies, so HMRC clearance is normally obtained first.

The reconstruction rules in Schedule 5AA TCGA 1992 require shareholders of the same class to be treated equally when new shares are issued. In a partition, different shareholders are meant to receive different companies, so the share capital is first reorganised into separate classes, one for each business. Paragraph 6 of Schedule 5AA allows the conditions to be tested after a reorganisation carried out for the scheme, which is what makes this work.

A partition must meet the definition of a scheme of reconstruction. The successor companies must issue ordinary shares only to holders of ordinary shares in the original company; shareholders of each class must have the same entitlement to new shares as others in that class; and the whole or substantially the whole of the original business must be carried on by the successor companies, or the scheme must be a court-approved compromise or arrangement.

Often, yes. Stamp duty relief under section 75 Finance Act 1986 needs each shareholder to hold the same proportions in both companies, which a partition does not achieve. HMRC's guidance gives partition examples where relief is denied on the transfer to the new company. Relief under section 77 for an initial share exchange may also be lost if the arrangements give particular persons control. Stamp duty at 0.5% should therefore be budgeted for.

It can. For instruments executed from 22 July 2020, section 77A Finance Act 1986 excludes a person who held at least 25% of the target company's shares throughout the three years before the share exchange when testing for disqualifying arrangements. That can preserve relief on the holding company insertion where one long-standing shareholder takes control of it. HMRC's examples show it does not help where several smaller holders together take control.

It can be. If land moves to a company owned by different shareholders, SDLT reconstruction relief is not available because shareholdings do not mirror. Acquisition relief can limit SDLT to 0.5% of the consideration, but only where the undertaking transferred is mainly a trade that is not dealing in land. Where a property company itself moves as a subsidiary, its shares move instead of the land. The structure can make a large difference to SDLT.

Each shareholder gives up an interest in the whole company and receives one business. If the values do not match their percentage holdings, value passes from one shareholder to another. That can be a gift for capital gains tax and inheritance tax purposes, and it can undermine HMRC clearance. Independent valuations of each business are usually obtained, and any imbalance is often corrected with a balancing adjustment that itself needs tax advice.

Sometimes, but cash is a problem. The reconstruction reliefs depend on shareholders receiving shares, so cash paid to a shareholder may be taxed, and some stamp duty and SDLT reliefs restrict non-share consideration. Balancing is often better done by moving assets or liabilities between the businesses before the split, so that each business carries the right value. The method should be agreed with your tax adviser before heads of terms are signed.

Both can work. A capital reduction partition avoids a liquidator and keeps one company alive, while a section 110 liquidation partition can suit cases where the original company should disappear or several businesses are separating at once. HMRC's partition examples use a section 110 liquidation, and its stamp duty examples use capital reductions. We compare company law, reserves, stamp taxes and future plans before recommending one.

In limited cases. A direct statutory demerger can transfer subsidiary shares to all or any of the members, so it is not limited to pro rata distributions. But it only works for trading businesses, and it fails if a main purpose is a change of control or sale afterwards. Because partitions often involve property or shareholders with different plans, a capital reduction or liquidation route is used more often.

It is strongly advisable. A partition involves shareholders swapping an interest in a shared company for full ownership of one business, which HMRC looks at closely. Clearance under sections 138 and 139(5) TCGA 1992 and under section 701 ITA 2007 is normally sought before any steps are taken. A clear explanation of why the shareholders are separating is central to the application, and HMRC must reply within 30 days of a complete application.

A sale soon after a partition can put the reliefs at risk. HMRC will want to know whether the sale was planned when the partition took place, and the anti-avoidance rules look at arrangements in place at the time. SDLT reliefs can also be withdrawn if control of the acquiring company changes within three years. If one shareholder intends to sell their business, say so at the start, so the plan and the clearance reflect it.

Each business normally takes its own liabilities, and shared borrowing has to be split, refinanced or repaid. Lenders usually need to consent and may require new security. Moving debt between companies can affect values and therefore the fairness of the split, and some liability transfers count as consideration for stamp tax purposes. The liabilities plan is settled alongside the valuations and the tax steps.

Yes. Families often use a partition so that different branches each own and run their own company, reducing future disputes. The capital gains tax reliefs can apply in the same way as for unrelated shareholders, but connected persons rules, gifts of value and inheritance tax need extra attention, particularly business relief, which depends on what each new company does. Succession planning and the partition are best designed together.

A statutory demerger uses special rules in Part 23, Chapter 5 of the Corporation Tax Act 2010 (sections 1073 to 1099) to separate trading businesses. A distribution that meets the conditions is an exempt distribution, so shareholders are not taxed on it as income. Capital gains tax rules then treat the shareholders' new holding as a reorganisation. It is a well-established route, but it is limited to trading activities and has strict anti-avoidance conditions.

In a direct demerger under section 1076, the company hands shares in a 75% subsidiary straight to its shareholders. In an indirect demerger under section 1077, the company transfers a trade, or shares in a 75% subsidiary, to a new company, and that new company issues its shares to the original company's shareholders. Indirect demergers have extra conditions about the new company and need capital gains relief at company level as well.

Generally no. The statutory demerger rules are about trading companies and trading groups, and for these purposes trade does not include dealing in shares, securities or land. Letting property is an investment activity rather than a trade. Where the aim is to separate a property investment business from a trading business, a capital reduction demerger or a liquidation demerger is normally used instead, as those routes are not limited to trades.

Section 1081 sets general conditions. Each relevant company must be UK resident or resident in a member State. The distributing company must be a trading company or member of a trading group, and any subsidiary transferred must be trading or the holding company of a trading group. The distribution must be made wholly or mainly to benefit the trading activities, and it must not form part of a scheme with certain prohibited main purposes.

Under section 1081(5), the distribution must not be part of a scheme or arrangement whose main purpose, or one of whose main purposes, is avoiding tax, making a chargeable payment, the acquisition of control of a relevant company or group company by anyone other than members of the distributing company, or the cessation or sale of a trade after the distribution. Plans to sell one of the businesses after the demerger are therefore a central concern.

This is risky. A statutory demerger fails if a main purpose of the arrangements is the sale of a trade, or third parties acquiring control, after the distribution. If a sale is already in contemplation, the exempt distribution may not be available. A later sale that was not planned at the time is different, but chargeable payments within five years are still taxed. If a sale is likely, another route or timing may be better, and we look at that first.

A chargeable payment is broadly a payment, other than a normal commercial one, made by a company involved in the demerger to its shareholders in connection with their shares, where the payment is not for genuine commercial reasons or forms part of a tax avoidance scheme. Under section 1086 CTA 2010, a chargeable payment made within five years after an exempt distribution is taxed as income and cannot be deducted by the company.

The payment is charged to income tax or corporation tax on income in the hands of the recipient, and the company paying it cannot deduct it in working out its profits. The company may also have reporting obligations to HMRC. Advance clearance under section 1092 CTA 2010 can confirm that a proposed payment is not a chargeable payment, which is useful where shareholders expect to take payments out within the five-year period.

Section 1091 CTA 2010 lets a company ask HMRC in advance to confirm that a proposed distribution will be an exempt distribution. HMRC must give its decision within 30 days of receiving the application, or of receiving further information it asks for. If HMRC refuses, the company can ask for the matter to be referred to the tribunal. Clearance applies only to the facts disclosed, so full and accurate disclosure is essential.

Yes. Under section 1095 CTA 2010, a company that makes an exempt distribution must make a return to HMRC within 30 days, giving details of the distribution and why it is exempt. Where clearance was obtained, the return largely confirms this. Further returns may be needed if chargeable payments are made within the following five years. These filings are easy to overlook after completion, so we include them in the step plan.

Normally not at the time. Section 192 TCGA 1992 provides that an exempt distribution is not a capital distribution, and the reorganisation rules apply as if the shareholders' original shares and the new shares were one holding. The base cost is apportioned between them. For an indirect demerger, section 136 TCGA 1992 provides similar treatment for the shares issued by the new company, subject to the anti-avoidance rule in section 137.

Not where the company leaves the group only because of the exempt distribution. Section 192(3) TCGA 1992 switches off the section 179 degrouping charge in that case. This is a real advantage over other routes. However, the protection is narrow: if the company leaves for another reason as well, or a later step causes it to leave, a degrouping charge could still arise, so the full sequence of steps needs to be checked.

Yes. A statutory demerger is a distribution by the company, so under company law it normally needs enough distributable reserves to cover it, broadly by reference to the book value of what is distributed. A company with little in the way of reserves may need to look at a capital reduction demerger instead. Your accountant confirms the figures from the relevant accounts, and your lawyer confirms the company law requirements.

Only if the conditions are met for each company involved. The distributing company must be a trading company or a member of a trading group, and a subsidiary whose shares are distributed must be a trading company or the holding company of a trading group. A subsidiary that mainly holds investments would not meet that condition, and the distributing company must also generally remain trading afterwards, so a different route is usually needed.

The legislation allows a direct demerger to transfer subsidiary shares to all or any of the members, so some statutory demergers can give different shareholders different businesses. However, the conditions about the purpose of the distribution and the acquisition of control still apply, and valuations and stamp duty need care. Whether this works depends heavily on the facts, and partitions are more often done using a capital reduction or liquidation demerger.

A 75% subsidiary is broadly a company in which another company owns at least 75% of the ordinary share capital, directly or indirectly. The demerger rules add further tests about entitlement to profits and assets. In a direct demerger, the distributing company must transfer the whole or substantially the whole of its holding, and its voting rights, in the subsidiary. Minority shareholdings below 75% cannot be demerged this way.

Sometimes, but it is one of the riskiest times to do it. Several reliefs that make a demerger tax neutral have conditions or anti-avoidance rules that look at what happens next, including a sale or a change of control. A demerger shortly before a sale isn't automatically ruled out, but the route, the order of the steps and the disclosure to HMRC all need care. Start as early as you can.

The statutory demerger rules in CTA 2010 require that the distribution isn't part of arrangements with a main purpose of, among other things, a third party acquiring control of the distributing company or a demerged company, or the sale of a trade after the distribution. HMRC's guidance says the provisions don't apply where the trading activity is to be sold. So a statutory demerger is rarely the right route if a buyer is already in view.

Often it is more flexible, because it doesn't rely on the statutory demerger conditions. But it still relies on capital gains reliefs for reconstructions, which have their own anti-avoidance rule, and on stamp duty and SDLT reliefs that can be denied or clawed back if control changes. It can work well before a sale, but only where each relief is checked against the sale plans.

Sections 137 and 139 TCGA 1992 contain a rule that can counteract the reliefs where a main purpose of the arrangements is to reduce or avoid tax. Finance Act 2026 replaced the older bona fide commercial reasons test with this main purpose test for transactions from 26 November 2025. HMRC says deferral alone, in line with the purpose of the reliefs, is not treated as a tax advantage.

They can. The transactions in securities rules in Part 13 Chapter 1 of ITA 2007 can tax a receipt as income where a main purpose of a transaction is to obtain an income tax advantage. A demerger followed by a sale can be looked at as a whole, particularly if shareholders end up with cash representing company reserves. A clearance under section 701 ITA 2007 is usually included in the application.

If a company receives an asset from another group company at no gain and no loss, then leaves the group within six years while still owning it, section 179 TCGA 1992 can treat it as having sold and reacquired the asset at market value. Demergers and sales both move companies out of groups, so this needs checking. Where a statutory demerger causes the exit, a specific exemption can apply.

Often, yes. Where a company leaves a group because a group company sells its shares, the degrouping gain is usually added to the sale proceeds of those shares instead of being charged on the departing company. If the sale qualifies for the Substantial Shareholding Exemption, that gain can then be exempt too. The SSE conditions, including the 12-month holding and trading tests, still have to be met.

When the seller is a company rather than individuals. If a holding company sells a trading subsidiary, SSE can exempt the gain where the seller has held at least 10% for a continuous 12 months in the six years before the sale and the company sold is a trading company or holding company of a trading group. A demerger is sometimes used to put the right company in position to sell.

Yes. If property moved under SDLT group relief and the company holding it leaves the group within three years, or under arrangements made in that period, the relief can be withdrawn. Reconstruction and acquisition reliefs can be withdrawn if control of the acquiring company changes within three years. A sale of the property company, or the company that holds the premises, needs to be checked against these periods.

It can. Share-for-share relief under section 77 of the Finance Act 1986 isn't available where there are disqualifying arrangements, broadly arrangements with a purpose of particular persons obtaining control of the acquiring company. There is an exclusion for people who have held at least 25% of the target throughout the relevant period. The reconstruction relief in section 75 also needs bona fide commercial reasons. Stamp duty on shares is 0.5%.

Possibly, but check it before the demerger. BADR on a share sale needs the company to be your personal company and a trading company, or holding company of a trading group, with you an officer or employee, throughout the two years before the sale. Your new shares are generally treated as the same asset as your old ones, but where the company being sold is newly formed, the two-year conditions need careful review.

Ideally well before. Once heads of terms are signed, it's harder to show that arrangements for a sale don't exist, and several reliefs look at exactly that. Separating property a year or more ahead also gives a cleaner company for the buyer's due diligence. If an offer has already arrived, it isn't necessarily too late, but the route and the clearance application need to reflect the full facts.

Yes, if a sale is planned or being discussed. A clearance only protects you if all material facts were disclosed, and a planned sale is clearly material to a demerger. Leaving it out can make the clearance worthless. In practice, a well-explained application that sets out the commercial reasons for both the demerger and the sale gives HMRC what it needs to reach a decision.

Usually, yes. A buyer's advisers will want comfort that the demerger didn't leave tax exposures in the company they're buying, such as a degrouping charge or SDLT clawback. HMRC clearances, a clear step plan and evidence that the steps followed it make due diligence quicker. Buyers often ask for specific tax indemnities for pre-sale reorganisations, so good records help in negotiations too.

Sometimes. A new holding company can allow a trading subsidiary to be sold while property or cash stays in the group, which may mean nothing needs to be demerged. The holding company's sale can then rely on the Substantial Shareholding Exemption where the conditions are met. Whether that suits depends on what you want to do with the proceeds and the retained assets.

As early as possible, ideally before any buyer is involved. Early planning widens the choice of routes, makes it easier to evidence the commercial reasons and gives time for HMRC clearance, which has a 30-day response period from a complete application. It also lets the two-year BADR conditions and any SDLT clawback periods run their course before completion.

A demerger can split a family company so that each branch of the family, or each child, ends up owning the business they will run. It can also separate investment property from the trade, so the next generation inherits a cleaner structure. Where the conditions are met, the split itself can often be done without immediate tax, which leaves the family free to plan gifts and inheritance afterwards.

Often, yes. A demerger can first put the trade and the property into separate companies. The shares can then be passed to different children, either by lifetime gifts or through your will. Splitting things this way can avoid joint ownership disputes later. Fairness between children, the tax on each gift and the inheritance tax position of each company all need to be considered together.

From 6 April 2026, 100% Business Relief applies to the first £2.5m of combined qualifying business and agricultural property per person, with 50% relief on qualifying value above that. Any unused part of the £2.5m allowance can pass to a surviving spouse or civil partner. A separate £2.5m allowance applies to relievable property held in trusts. This makes the value and structure of each company more important to plan around.

Usually not. Shares don't qualify for Business Relief if the company's business consists wholly or mainly of making or holding investments, which includes letting property. A trading company that holds some investment property can still qualify, but surplus assets not used in the business may be excluded. Separating property can therefore make the Business Relief position of the trading shares clearer, even though the property company is unlikely to qualify.

Not necessarily. Business Relief generally needs the shares to have been owned for two years. Where new shares are treated as the same as your old shares under the capital gains reorganisation rules, the period of owning the old shares counts towards the two years for the new ones. That helps where a demerger is followed by a death or a gift, but each company still has to qualify in its own right.

Business Relief is usually lost once shares are sold for cash, from the date of a binding contract for sale, because cash doesn't qualify. If part of the family wants to sell and part wants to keep going, a demerger before any sale can let those who are keeping their business preserve the relief, while those selling take their own route. The timing of any sale needs careful thought.

A gift of shares is normally treated as a disposal at market value, so a gain can arise even though no money changes hands. Gift holdover relief can be claimed jointly by you and your child for shares in an unlisted trading company, so the gain passes to them instead. The relief can be restricted where the company holds investment assets, which is another reason families separate property first.

Usually the demerger comes first, so each child receives shares in the company they'll own. But the order affects the reliefs. Some demerger conditions look at whether people other than the existing shareholders will gain control afterwards, and gifts planned as part of the same arrangement need to be disclosed and considered. We map out the sequence, including any gifts, before applying for clearance.

Yes, but usually indirectly. A demerger normally divides the company between its existing shareholders, so the children would typically receive shares afterwards by gift or inheritance. In some cases children become shareholders first and then take part in a partition. Either way, the commercial reasons, the effect on control and the inheritance tax position for each generation need to be worked through.

It can. Some families put shares in one of the new companies into a trust, for example to hold value for younger children or to keep control with the parents for a while. Trusts have their own inheritance tax rules, including periodic charges, and the Business Relief allowance for trust property is separate from an individual's. Trusts add complexity, so they're worth considering alongside the demerger rather than after it.

A family investment company is a company used to hold investments for the family, often with parents controlling it and children holding shares carrying value. Some families use one after a demerger, for example to hold the property side or the proceeds of a later sale. It's a separate piece of planning with its own tax treatment, and it isn't suitable for everyone.

That's a classic case for a partition demerger. The family company is divided so each child, or each side of the family, owns their business outright, with no cross-shareholdings. It reduces the risk of future disputes and lets each business make its own decisions. The shares are usually reorganised into separate classes first, so each class can receive shares in a different new company.

It's not compulsory, but it's normally obtained. The capital gains reliefs for reconstructions, the statutory demerger rules and the transactions in securities rules all have anti-avoidance provisions. A clearance application explains the commercial reasons, such as succession and letting each business be managed by the person who will own it, and confirms HMRC's view before any step is taken.

Succession is a genuine commercial reason that HMRC sees often, especially where different family members will run different businesses. What matters is that the reasons are real, documented and consistent with the steps proposed, and that the overall arrangements aren't mainly about avoiding tax. A well-prepared clearance application explains the family background, the businesses and what each person will do.

It often can. Leaving siblings as joint shareholders of a company they don't agree on can lead to deadlock, disputes or a forced sale later. A demerger while you're still involved lets you decide who gets what, with independent valuations and a clear legal structure. It can be done with care for fairness between children, including where one business is worth more than the other.

Well before you want to step back. The two-year ownership periods for Business Relief and Business Asset Disposal Relief, any clawback periods for stamp duty land tax and the time needed for clearance all favour starting early. Planning while you're still in control also gives you the most choice about how the businesses are divided and who runs them.

It depends on the route. Most demergers combine some of these: section 138 TCGA 1992 for share exchanges and reconstructions, section 139(5) TCGA 1992 for business transfers between companies, section 1091 CTA 2010 for statutory demergers, and section 701 ITA 2007 for the transactions in securities rules. Where a company rather than an individual receives value, section 748 CTA 2010 may be added. The application lists every provision relied on.

Yes. The statutory clearances for reorganisations are dealt with by HMRC's Clearance and Counteraction Team, and a single application can ask for clearance under several provisions at once, as long as it lists each of them. This keeps the facts consistent across every clearance and means HMRC sees the whole transaction together, which is usually what it wants.

Applications are normally emailed to HMRC's reconstructions mailbox, with attachments under 2MB, or posted to HMRC's clearance address. Applications that could affect a quoted company's share price, or involve the finances of well-known individuals, should be clearly marked as market sensitive. We prepare, submit and follow up the application, and deal with HMRC's questions.

It's the clearance for a statutory demerger. It asks HMRC to confirm that a proposed distribution will be an exempt distribution under the demerger rules in CTA 2010. It's only relevant where a statutory demerger is used, which needs trading activities on both sides. A related clearance under section 1092 confirms that a payment won't be treated as a chargeable payment, which can otherwise be taxed as income.

It relates to the corporation tax relief that lets a company transfer its business to another company under a scheme of reconstruction at no gain and no loss. Since 26 November 2025, that relief can be counteracted where a main purpose of the arrangements is to reduce or avoid capital gains tax, corporation tax or income tax. Clearance under section 139(5) confirms, before the transfer, that HMRC is satisfied that rule won't apply.

Because most demergers involve shareholders receiving new shares in place of old ones, which relies on the reconstruction or share exchange reliefs in sections 135 and 136 TCGA 1992. Those reliefs are subject to an anti-avoidance rule in section 137. A section 138 clearance confirms HMRC's view that the rule doesn't apply. It must be obtained before the shares are issued.

Because a demerger moves value between companies and shareholders, and the transactions in securities rules in ITA 2007 can tax a receipt as income where a main purpose is to obtain an income tax advantage. A clearance under section 701 ITA 2007 confirms that HMRC won't use those rules against the transaction. It's routinely included in demerger applications involving close companies.

Usually not. Section 1044 CTA 2010 is the clearance for a company buying back its own shares and wanting capital treatment for the seller. It's only relevant if a buy-back forms part of the plan, for example where one shareholder takes cash rather than a business. For most demergers the relevant clearances are under the TCGA 1992, the demerger rules in CTA 2010 and the transactions in securities rules.

HMRC should reply within 30 days of receiving a complete application. If it asks for more information, it should respond within 30 days of receiving the reply. In practice, a clear and complete application is the best way to avoid follow-up questions. We build the clearance period into the timetable so it doesn't hold up a refinancing, a sale or a year end.

At a high level: who the companies and shareholders are, the shareholdings before and after, each step in order with diagrams, any consideration, the latest accounts, the commercial reasons for the demerger and anything planned afterwards, such as a sale or gifts. It also lists each provision under which clearance is sought. Full and accurate disclosure is what makes the clearance worth having.

Common reasons include letting separate businesses be managed and financed independently, protecting property from trading risk, shareholders wanting to go their separate ways, and succession, where different family members will run different businesses. What matters is that the reasons are genuine and consistent with the steps proposed, and that the arrangements as a whole aren't mainly about avoiding tax.

A refusal isn't a finding that tax is due, but it is a clear warning. HMRC usually asks questions before refusing, and those questions often show what is worrying it. The options are to provide further explanation, change the steps or proceed without clearance and accept the risk. Because nothing has been implemented, the plan can still be adjusted.

No. There is no statutory clearance procedure for SDLT. The SDLT reliefs that often apply on demergers, group relief and reconstruction or acquisition relief, are claimed on the SDLT return and can be checked by HMRC afterwards. That makes careful analysis before completion important, alongside the clawback periods that can apply for three years afterwards.

Stamp duty reliefs for reconstructions and share-for-share acquisitions, under sections 75 and 77 of the Finance Act 1986, aren't covered by the statutory clearance application. Instead, the transfer documents are sent to HMRC's Stamp Taxes team for adjudication, which is compulsory to obtain these reliefs. Once adjudicated, the stamp duty position of that document is settled.

It's HMRC's written view on how the law applies to a transaction where there's genuine uncertainty, offered through its non-statutory clearance service. HMRC usually replies within 28 days. It isn't available where a statutory clearance applies, and HMRC won't use it to approve tax planning. For demergers, it's occasionally useful on a point that the statutory clearances don't cover.

Only for the transaction as described. A clearance applies to the facts and steps set out in the application. If the steps change, or something material wasn't disclosed, the clearance may not protect you. If the plan changes before completion, it's usually best to update HMRC and, where necessary, obtain a fresh clearance before going ahead.

Yes. A company that makes an exempt distribution must make a return to HMRC within 30 days of making it. Where clearance was obtained in advance, the return can simply confirm that. A similar return is needed for chargeable payments made within five years after an exempt distribution. We include these filings in the post-completion checklist.

Usually for one of three reasons. To protect the property from the risks of the trade, so a claim against the business can't reach it. To sell the trading business while keeping the property as a long-term investment. Or to tidy up a company whose investment assets could affect reliefs such as Business Asset Disposal Relief or inheritance tax Business Relief. The right structure depends on which of these matters most to you.

You can, but it's often expensive. A transfer to a shareholder is normally treated as made at market value, so the company may pay corporation tax on the gain, and you may be taxed on the value you receive as a distribution, typically at dividend rates. Stamp duty land tax can also apply. A properly structured demerger aims to avoid these charges, which is why the route matters.

Usually not. The statutory demerger rules in the Corporation Tax Act 2010 only work where the businesses being separated are trading activities. Letting property is normally an investment business rather than a trade, so a property company can't usually be demerged that way. Separating property therefore tends to use a capital reduction demerger or a liquidation demerger under section 110 of the Insolvency Act 1986.

Often a capital reduction demerger. A new holding company is put in place, and its share capital is then reduced, with the property (or the company holding it) passing to a second new company owned by the same shareholders. Where the conditions are met, reliefs can apply for capital gains tax, corporation tax, stamp duty and SDLT. A liquidation demerger is the main alternative where a capital reduction doesn't suit.

It can. BADR on a share sale needs the company to be a trading company, or the holding company of a trading group, throughout the two years before the sale. HMRC looks at whether non-trading activities are substantial, using a 20% indicator across measures such as income and assets. A large investment property can put trading status at risk, so separating it in good time can protect the relief on the trading shares.

Shares don't qualify for Business Relief if the company's business is wholly or mainly making or holding investments, which includes letting property. Even where the company is mainly trading, assets not used in the business, such as surplus property, can be excluded from the relief as excepted assets. Separating the property can make the position of the trading shares clearer, though the property company itself won't usually qualify for Business Relief.

Not necessarily. SDLT group relief, reconstruction relief and acquisition relief can apply when property moves between companies, depending on the route. Acquisition relief, where available, limits SDLT to 0.5% of the chargeable consideration, but it needs the undertaking's main activity to be a trade, so it rarely helps a pure property business. These reliefs have conditions and clawback rules, so SDLT should be checked before anything moves.

It can be withdrawn. SDLT group relief can be clawed back if the company that received the property leaves the vendor's group within three years, or under arrangements made in that period, while it still holds the property. Reconstruction and acquisition relief can be withdrawn if control of the acquiring company changes within three years. Any planned sale or refinancing needs to be considered alongside the demerger.

It isn't compulsory, but it is usually sensible. Clearance is commonly sought under section 138 and section 139(5) TCGA 1992 for the capital gains reliefs, and under section 701 ITA 2007 for the transactions in securities rules. These can go in a single application. The reliefs have anti-avoidance rules, so confirming HMRC's view before any step is taken gives certainty for you, lenders and any later buyer.

Often, yes, and it's one of the most common reasons for a property demerger. But a sale soon after a demerger, or one already being negotiated, can affect several reliefs, including SDLT reliefs and the anti-avoidance rules on reconstructions. The demerger and the sale need to be planned together, ideally well before a buyer is involved. Our page on demerging before a sale explains the risks.

The lender needs to be involved early. Most bank facilities restrict transfers of secured property or changes in group structure without consent, and the lender may want new guarantees or security once the property sits in a separate company. Any debt that moves with the property also matters for the tax analysis, including the SDLT position, so the funding arrangements should be part of the plan from the start.

Yes. A common result is that the property company owns the premises and lets them to the trading company under a lease at a market rent. That rent becomes income of the property company, and the trading company can usually deduct it. A proper lease also protects both sides if the trading company is later sold. The lease terms are worth agreeing before the demerger completes.

In most property demergers, yes. The shareholders end up holding shares in both the trading company and the property company, usually in the same proportions as before. That mirror-image ownership is part of what lets several reliefs apply. If shareholders want to take different assets, for example one keeps the property and another the trade, that's a partition, which has different conditions.

The company law steps matter here. A capital reduction demerger relies on reducing share capital, supported by a directors' solvency statement, while a dividend-based route needs distributable reserves. Your accountant's figures will show which steps are possible. Getting this wrong can make a step invalid, so we work with your accountant and lawyer to confirm the numbers before the timetable is fixed.

Allow a few months. The time goes on agreeing the structure, preparing the clearance application, waiting for HMRC, which has 30 days from a complete application to respond, and carrying out the legal steps with lenders and lawyers. A liquidation route usually takes longer because a liquidator is appointed. If a sale is on the horizon, starting early gives the most options.

It can help. Once the property is owned by a company outside the trading group, creditors of the trading company generally can't look to it, because it no longer belongs to that company. Protection isn't absolute: guarantees, cross-security and a transfer at the wrong time can all undermine it. A demerger should be done while the trading company is solvent and for sound reasons.

Usually through a partition demerger. The company's businesses or assets are divided between new companies, and each shareholder, or group of shareholders, ends up owning their own part outright. Where the steps are structured correctly and the conditions are met, reliefs can mean no immediate capital gains tax, corporation tax or stamp taxes. HMRC clearance is normally obtained before anything is done.

It's a demerger where the shareholders don't keep the same holdings in every company afterwards. Instead, the group is split so that one shareholder takes one business and another takes the other. This differs from a demerger where everyone keeps a share of both companies, and it affects which reliefs are available, especially for stamp duty and SDLT, so the route needs to be chosen with that in mind.

The main ones are a capital reduction demerger and a liquidation demerger under section 110 of the Insolvency Act 1986. A statutory demerger can also work in some cases, because the shares in the new company can be issued to some members only, but it is limited to trading activities and has strict conditions about later changes of control. The right route depends on the businesses, assets and reserves involved.

Because the capital gains relief for reconstructions needs each shareholder in a class to be treated the same way. If the shares are first reorganised into, for example, A shares and B shares, the A shareholders can receive shares in one new company and the B shareholders in the other. The conditions are then applied to the position after that reorganisation. It's a common first step in a partition.

Each shareholder should come away with value that matches what they gave up, otherwise one may be treated as making a gift or receiving value they're taxed on. Where the businesses aren't equal, the split is usually balanced by deciding which company takes certain cash, debt or other assets before the partition. Valuations are therefore an important early step, and both sides normally want independent figures.

It can be done, but it usually sits outside the reliefs. Cash paid between shareholders, or paid out by a company as part of the partition, can be taxed as a capital gain or as income and may cause the anti-avoidance rules to be looked at more closely. Where possible, value is balanced within the companies before the split. We model the options so you can see the tax cost of each.

Yes, and partitions often follow a breakdown in the relationship. The steps still need everyone's agreement, because resolutions, share reorganisations and transfers need shareholder approval. A demerger can be a cleaner outcome than a sale or a winding up, because each side keeps a business. Clear commercial reasons, such as the shareholders no longer being able to work together, also matter for the clearance application.

Yes. Under section 111 of the Insolvency Act 1986, a member who votes against the special resolution for a section 110 reconstruction can dissent in writing within seven days and require the liquidator to abstain or to buy out their interest. That's one reason a liquidation demerger works best where the shareholders have already agreed the split, and why the legal and tax plan should be settled first.

For shareholders, section 136 TCGA 1992 can treat the shares received in the new company as replacing the old ones, so no gain arises at that point. For the companies, section 139 TCGA 1992 can treat business transfers as made at no gain and no loss. Both need a scheme of reconstruction within Schedule 5AA TCGA 1992 and are subject to anti-avoidance rules, which is why clearance is usually sought.

In outline, the new companies must issue ordinary shares only to the holders of ordinary shares in the original company, holders of the same class must be treated equally, and the new companies together must carry on the whole or substantially the whole of the original business. A court-approved arrangement is an alternative to that last condition. Whether these are met depends on the precise steps, so they're checked against each one.

It can be. The stamp duty relief for reconstructions under section 75 of the Finance Act 1986 needs the shareholders to hold both companies in the same proportions afterwards, which a partition doesn't do. Share-for-share relief under section 77 can also be denied where there are arrangements for particular people to gain control. Stamp duty on shares is 0.5%, so it's worth costing early.

Possibly. SDLT reconstruction relief needs mirror-image shareholdings, so it isn't usually available on a partition. Acquisition relief can limit SDLT to 0.5% of the chargeable consideration, but only where the undertaking's main activity is a trade that isn't mainly dealing in land. Group relief can be clawed back when companies leave a group. If property is involved, SDLT is often the largest potential cost to plan for.

Sometimes. An indirect statutory demerger can issue shares in the new company to all or any of the members, so it can produce a partition. But it only works for trading activities, the distribution must benefit the trades, and it must not be part of arrangements for someone outside the existing members to acquire control. If one shareholder plans to sell their business soon after, the conditions are unlikely to be met.

Tell your adviser at the start. A planned sale soon after a partition can affect the anti-avoidance rules for capital gains, the statutory demerger conditions, stamp duty relief and SDLT clawback. It doesn't always rule out a partition, but it changes the route and the clearance application. Keeping it quiet risks losing the protection that clearance is meant to give, because clearance depends on full disclosure.

Then a demerger may not be the right tool. A partition gives each shareholder a business or assets, not money. If one shareholder wants to exit for cash, a sale of their shares to the others or a purchase of own shares by the company may suit better, with its own tax treatment and clearance. We can look at both paths and explain the tax on each before you negotiate.

Typically a few months once the shareholders have agreed the split in principle. Valuations, the share reorganisation, the HMRC clearance application and the legal steps all take time, and HMRC has 30 days from a complete application to respond. Disputes over value are usually what slows things down, so agreeing the commercial terms early is the best way to keep the timetable on track.

You answer six questions about what you want to separate, who will own each part, whether a sale is planned, your reserves, property and borrowing. The tool scores the three main demerger routes against your answers using the conditions each route has to meet, then ranks them with the reasons, the HMRC clearances usually needed and the points to watch.

No. It gives an indication based on a few facts, to help you understand the options and start a conversation. The right route depends on the full facts, including the group's history, the shareholders' circumstances and any plans for the future. A short call with us is usually enough to confirm the route.

The statutory demerger rules in Part 23 of the Corporation Tax Act 2010 only apply where the companies are trading companies or members of trading groups. Holding property as an investment isn't a trade, so separating a property portfolio from a trading business usually needs a capital reduction or liquidation demerger instead.

Several demerger reliefs depend on the transaction being for genuine commercial reasons and not part of arrangements for someone else to take control. A statutory demerger can't be used where there are arrangements for a third party to acquire control, and other routes need careful handling if a sale is already in view. Timing and evidence of the commercial reasons both matter.

Distributable reserves are, broadly, a company's accumulated realised profits less its realised losses. A statutory demerger is a distribution in company law, so the company needs enough distributable reserves to cover it. A capital reduction demerger works differently: reducing share capital creates the reserve needed, which is one reason it's so widely used.

Most facility agreements restrict reorganisations, disposals and distributions without the lender's consent, so the bank usually needs to agree. For a capital reduction, the directors must also sign a solvency statement confirming the company can pay its debts. In a liquidation demerger, creditors must be paid or agree to the arrangements.

A partition is a demerger where different shareholders end up owning different businesses, for example two families going their separate ways. It's usually done through a capital reduction or liquidation demerger. The tax reliefs have additional conditions for partitions, and independent valuations are normally needed so each side receives fair value.

Yes. When you finish, the page address contains your answers, so you can copy the link to share it with your accountant or co-shareholders, or print or save the result as a PDF. Nothing you enter is stored or sent to us unless you choose to contact us.

The tool lists the clearances usually sought for each route. For capital reduction and liquidation demergers, these are typically section 138 and section 139(5) TCGA 1992 and section 701 ITA 2007. For a statutory demerger, they're usually sections 1091 and 1092 CTA 2010. They can normally be requested in a single application to HMRC.

Many groups don't fit neatly into a questionnaire, for example where there are several layers of companies, overseas shareholders or trusts. Choose the closest answers for an indication, then talk to us. We respond the same working day and can usually tell you on a first call which routes are realistic.

It estimates four charges that could arise if a business or property were separated without the right reliefs: income tax on a distribution for the shareholders, corporation tax on the company's gain, SDLT on land moving between companies, and stamp duty on shares. Next to each one it shows the relief that, where the conditions are met, stops that charge arising.

Not usually all at once, and not on every route. Some charges overlap, and which ones are relevant depends on how the demerger is structured. The calculator shows the scale of what the reliefs protect, which is why the route, the order of the steps and HMRC clearance matter so much.

If a company hands shareholders a business or the shares in a subsidiary, that's normally a distribution, like a dividend paid in assets rather than cash. Without an exemption, it's taxed as dividend income at the shareholders' rates. A statutory demerger can be an exempt distribution, and capital reduction and liquidation demergers are structured as reorganisations so the shareholders are not treated as receiving income.

When a company disposes of assets to someone it's connected with, it's normally treated as selling them at market value, so any increase in value is a chargeable gain. Where the conditions in section 139 TCGA 1992 are met, assets transferred as part of a reconstruction move at no gain and no loss, so no corporation tax arises on the transfer.

It uses the SDLT rates for non-residential and mixed-use property in England and Northern Ireland: nothing on the first £150,000, 2% on the next £100,000 and 5% above £250,000. Wales and Scotland have their own taxes, land transaction tax and land and buildings transaction tax, with different rates and reliefs.

Depending on the route, group relief, reconstruction relief or acquisition relief in Schedule 7 to the Finance Act 2003 may apply. Each has conditions and anti-avoidance rules, and group relief can be clawed back if the company that received the land leaves the group within three years while still holding it. The SDLT position should be planned from the start.

Stamp duty at 0.5% applies to transfers of shares for consideration. Reliefs in sections 75 to 77 of the Finance Act 1986 can apply to reconstructions and to a new holding company acquiring a company's shares. Section 77A can deny relief where there are arrangements for a change of control, so a planned sale needs care.

It uses 2026/27 rates: dividend tax at 10.75%, 35.75% or 39.35% depending on the shareholders' band, corporation tax at the 25% main rate, stamp duty at 0.5% rounded up to the nearest £5, and SDLT non-residential rates. Allowances and reliefs such as the dividend allowance are ignored to keep the illustration simple.

Where the route is right and the conditions are met, the demerger itself can often be carried out without any of these charges arising. There are still professional costs, and some charges, such as degrouping charges or SDLT clawbacks, can arise later if things change, so the conditions need watching afterwards.

No. The calculation runs in your browser and nothing you enter is stored or sent to us. If you'd like us to look at your figures properly, get in touch and we'll respond the same working day.

On prudent planning assumptions, most demergers take around three to four months from first advice to completion. The main drivers are the HMRC clearance period, how quickly information is available, whether valuations or lender consents are needed, and the route. A liquidation demerger usually takes a little longer because a liquidator is appointed.

For the statutory clearances commonly used on demergers, HMRC must give its decision within 30 days of receiving the application. If it asks for more information within that period, the 30 days run again from when the information is provided. A complete, well-evidenced application keeps the timetable short.

They shouldn't. Clearance is given on the facts and steps described in the application, so implementing first removes the protection it offers, and changes after clearance may mean it no longer applies. Legal documents can be prepared during the clearance period so completion can follow quickly once it arrives.

HMRC often asks for further information or clarification, particularly where the commercial reasons need more evidence or a sale is in view. Allowing for one round of questions gives a more realistic timetable. If HMRC doesn't ask anything, you finish earlier.

They usually run alongside the clearance period, so they needn't add time if they're started early. Valuations are normally needed for partitions, where shareholders take different businesses, so each side receives fair value, and sometimes for stamp duty or other purposes.

It depends on the route. A capital reduction demerger needs a share exchange, a solvency statement, a special resolution and transfer documents. A statutory demerger needs board minutes and dividend or transfer documents. A liquidation demerger needs a declaration of solvency, the liquidator's appointment and a section 110 agreement. Your solicitor prepares these, following the tax step plan.

Usually Companies House filings for the share changes, resolutions and any new companies, stamp duty returns or relief claims for share transfers, SDLT returns within 14 days where land moves in England or Northern Ireland, and the reliefs claimed or reported in the companies' and shareholders' tax returns.

Sometimes, but rushing raises risk. HMRC's 30-day period can't be shortened, and a demerger closely followed by a sale needs particular care with the reliefs. If you have a deadline, talk to us as early as possible, and we'll tell you honestly whether it's realistic.

No. It uses typical durations to help you plan and to show when advice needs to start. The real timetable depends on your group, your advisers, HMRC and any third parties such as lenders. We'll give you a firm timetable once we've seen the facts.

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In company law, a statutory demerger is a distribution: the company is giving shareholders a business or the shares of a subsidiary. A company can only make distributions out of profits available for the purpose, so it needs distributable reserves at least equal to the book value of what it's distributing. Without them, the distribution would be unlawful.

Broadly, a company's accumulated realised profits, less its accumulated realised losses, as shown in its accounts. Share capital and share premium are not distributable. Unrealised gains, such as revaluation surpluses on property, are generally not distributable either, although there are special rules when assets are distributed in specie.

When a company distributes an asset in specie, company law generally measures the distribution by the asset's book value in the accounts, not its market value. So a subsidiary carried at a low cost can often be distributed with modest reserves. This is a simplification and the detailed rules should be checked.

There are options. Subsidiaries can sometimes pay dividends up to the parent to increase its reserves. Alternatively, a capital reduction demerger doesn't rely on existing reserves, because reducing the share capital creates a reserve that can support the demerger. Which works best depends on the group.

A private company can reduce its share capital by special resolution supported by a directors' solvency statement, under sections 641 to 644 of the Companies Act 2006. The amount of the reduction can then be used to support the transfer of the business being separated. A new holding company is often inserted first, so its share capital reflects the group's value.

It's a statement by all the directors that the company can pay its debts now and will be able to for the next 12 months. Directors who make one without reasonable grounds can commit a criminal offence, so the company's position needs to be reviewed carefully before a capital reduction.

Yes. Reserves are assessed company by company, not across the group. Profits sitting in a subsidiary don't help the parent until they're paid up as a dividend. That's a common reason a group that looks profitable still needs planning before a statutory demerger.

Usually the distribution is justified by reference to the company's last annual accounts. Where those don't show enough reserves, or circumstances have changed, interim accounts may be needed. Your accountant can confirm which accounts to use.

No. It's a simplified company law sense check to show whether reserves are likely to be an issue and how the routes compare. The rules on distributions have nuances, and the directors must be satisfied the company stays solvent. We'll review the position properly with your accountant.

No. The check runs in your browser and nothing you enter is stored or sent to us. If you'd like us to look at it with you, get in touch and we'll respond the same working day.

Yes. A demerger can move property into a separate company owned by the same shareholders, leaving the trading company ready to sell. With the right reliefs and HMRC clearances in place, this can often be done without capital gains tax, corporation tax or stamp duty land tax on the reorganisation itself, although each relief has conditions that must be met.

Many buyers want the trading business but not the property it uses. Buying the property ties up capital in an asset outside their core business, and their funders may value it differently. For the owners, keeping the property can provide a long-term income, for example as rent from the trading business after the sale.

A capital reduction demerger uses a reduction of a company's share capital under the Companies Act 2006 to transfer a business or assets, such as property, to a new company owned by the shareholders. It's often used where the property is an investment rather than a trade. It usually follows the insertion of a new holding company and needs carefully ordered legal and tax steps.

A new holding company is often needed to make the later demerger steps work, because the capital reduction is made by a company at the top of the group. It's usually inserted through a share-for-share exchange, where shareholders swap their shares for shares in the new company. Where the conditions are met, that exchange can be done without a capital gains tax charge.

A statutory demerger under the Corporation Tax Act 2010 needs the businesses being separated to be trading, and can't be part of arrangements for outsiders to take control afterwards. Holding property is usually an investment activity, and here a sale was planned. A capital reduction demerger, or a liquidation demerger, is usually used in that situation instead.

It's another way to separate property from a trade. A liquidation demerger uses section 110 of the Insolvency Act 1986: a company is wound up and its businesses or assets pass to new companies owned by the shareholders. It involves a liquidator and more formal steps, so a capital reduction route is often preferred where it works on the facts.

Section 138 TCGA 1992 clearance confirms that HMRC won't use its anti-avoidance rule to deny the capital gains treatment of a share exchange or reconstruction. Section 701 ITA 2007 clearance confirms the transactions in securities rules won't be used to tax shareholders on income. Both are commonly sought before a demerger like this.

Because it gives certainty before any irreversible step. If HMRC has questions or concerns, they can be answered, or the plan changed, while it's still a plan. Implementing first and asking later risks a completed reorganisation that doesn't qualify for relief, which is much harder to put right. That was the approach here.

HMRC must normally respond to the main statutory clearances within 30 days of a complete application. If it asks for more information, the 30 days run from when that information is provided, so the overall time can be longer. That's why clearance needs to be built into the timetable early.

It can be, because moving property between companies is normally a land transaction. Reliefs in Schedule 7 to the Finance Act 2003, such as reconstruction and acquisition relief, can apply to some reorganisations. Their conditions need to be met carefully, and the relief can be withdrawn if control of the acquiring company changes within three years.

Yes. A clearance application should set out the full picture, including any planned sale. A sale after a reorganisation can affect some reliefs, so the order and timing of the steps matter. Getting advice before a buyer is involved gives the most options. In this case, the clearance applications reflected the planned sale.

Removing investment property can help a company count as trading, which the relief requires. But the conditions must generally be met throughout the two years before the sale, so the timing of the demerger and the sale both matter. Each shareholder's position, including their shareholding and role, should be checked separately.

It stays with the shareholders. It can continue to own the property and, if the parties agree, lease it to the trading business under its new owner. The property company's own tax position, such as corporation tax on rent and any future sale, then needs looking after separately from the trade.

Often, yes. The same principles apply to smaller groups, but the professional costs of clearances, legal steps and accounts work need to make sense against the benefit. For a single property in a modest company, we'll tell you honestly whether a demerger is worthwhile or whether another approach suits better.

Planning the order of the steps and getting HMRC clearance before implementation. The holding company insertion, the capital reduction demerger and the property transfers each depended on the one before. The order of the steps matters, which is where we come in. Each step was checked against the plan before it was taken, and nothing was implemented until HMRC had given clearance.

Usually not, where the conditions are met. Both normally rely on the same capital gains reliefs for a scheme of reconstruction: section 136 TCGA 1992 for the shareholders and section 139 for the company transferring the business. Neither relies on the statutory demerger rules, so both can work for property and investment businesses. The real differences are in company law, cost, timing and practicalities rather than in the headline tax treatment.

It depends on the group, but a liquidation demerger usually involves an extra professional, the liquidator, who must be a licensed insolvency practitioner. A capital reduction demerger avoids that, although it often needs a new holding company inserted first, which adds steps of its own. The fairest comparison is the full set of legal, tax and insolvency steps for your structure, not one route's headline cost.

No, not in the same way. A distribution of assets in a winding up is not treated as an income distribution for corporation tax purposes, and the transfer is made by the liquidator under section 110 of the Insolvency Act 1986 rather than as a dividend. That is one reason a liquidation demerger can suit a company whose reserves are low or tied up, although the company must still be solvent.

It avoids appointing a liquidator and usually leaves the existing company in place, which keeps its contracts, bank accounts, VAT registration and employees where they are. A private company can reduce its capital by special resolution backed by a directors' solvency statement, without going to court. The reserve created is treated as realised, which can then support the demerger distribution.

Not outright, but they have rights. A section 110 scheme in a members' voluntary liquidation needs a special resolution. A member who voted against it can give written notice within seven days requiring the liquidator either not to carry out the scheme or to buy their interest. That dissent right is a practical reason to make sure every shareholder supports the plan first.

In a liquidation demerger the original company is wound up and eventually dissolved after its businesses pass to new companies. In a capital reduction demerger the company that makes the reduction normally continues, often as the holding company of whatever stays behind. Whether you want the original company to survive, for example because of contracts, licences or history, can decide the route by itself.

Yes, in both routes. In a capital reduction the directors give a solvency statement about the company's ability to pay its debts over the following year. In a liquidation demerger they make a statutory declaration of solvency before the winding up. Making either without reasonable grounds is a criminal offence, so the directors need proper financial information behind them.

Neither is fast if done properly, because HMRC clearance usually comes first and HMRC has 30 days to respond to a complete application. After clearance, a capital reduction demerger can often be implemented in a tighter window, since there is no liquidator to appoint. A liquidation demerger has more formal stages, and the final dissolution takes longer, but the business transfers themselves can happen quickly.

Yes. Both can be used for a partition, where different shareholders end up owning different businesses. This usually involves reorganising the shares into separate classes first, so each class can receive its own business. Partitions raise extra stamp duty and valuation points, so the route choice is only one part of the planning.

The same reliefs are in point, mainly SDLT reconstruction relief and acquisition relief under Schedule 7 to the Finance Act 2003. Whether they apply depends on how the shares are issued, whether shareholdings mirror each other and the type of business being transferred. Both reliefs can be withdrawn if control of the acquiring company changes within three years, whichever route is used.

It can. Both routes depend on capital gains and stamp tax reliefs with anti-avoidance rules that look at what happens afterwards. Neither route makes a sale risk-free, so what matters most is disclosing the plans to HMRC and ordering the steps correctly. The statutory demerger route is the one that usually struggles where a sale is planned.

For disposals on or after 6 April 2026, BADR gives a capital gains tax rate of 18% on qualifying gains, up to a lifetime limit of £1m per person. It was 14% for 2025/26 and 10% before 6 April 2025. Gains above the limit are taxed at the normal rates of 18% or 24%, depending on your income.

It can be, but the saving is smaller than it used to be. For a higher rate taxpayer, BADR saves the difference between 24% and 18% on up to £1m of gains, so a maximum of £60,000 per person. That is still meaningful for many owners, but it should be weighed against the cost and wider benefits of any restructuring rather than driving it on its own.

It can. For a share sale, the company must be a trading company, or the holding company of a trading group, throughout the two years before the sale. That means its activities must not include non-trading activities to a substantial extent. HMRC treats 20% as an indicator, looking at measures such as income, assets, expenses and time. Significant let property or surplus cash can tip the balance.

It may, if the property is what threatens the company's trading status. Moving it into a separate company can leave a cleaner trading company. But BADR needs the conditions to be met for the two years before a sale, so separating the property early is better than separating it just before. A demerger shortly before a sale also raises other risks.

Not necessarily for your ownership. Where the reorganisation reliefs apply, your new shares are generally treated as the same asset as your old ones. But the company conditions, such as trading status and your role as an officer or employee, are tested on the company whose shares you sell. Where that company was newly formed in the demerger, how its history is treated needs specific advice.

It is an election to treat a reorganisation as a disposal for capital gains purposes, so BADR can be claimed on the gain to that point instead of the gain being rolled into the new shares. It applies to all the shares in the reorganisation, and must be made by the first anniversary of 31 January following the tax year. It means paying tax now rather than later, so it is only right in some cases.

You need to be an officer or employee of the company whose shares you sell, or of a company in its trading group, throughout the two years before the sale. After a demerger, check that each shareholder who wants BADR holds a role in the right company. Someone who only works in one of the businesses may not qualify on shares in the other.

Yes. For the two years before a sale, you generally need at least 5% of the ordinary shares and voting rights, plus a 5% economic entitlement to profits and assets. In a partition, where shareholders take different businesses, the shareholdings in each company change substantially, so each shareholder's position in the company they will eventually sell should be checked.

Usually not. A company whose business is mainly holding let property is an investment company, not a trading company, so shares in it generally won't qualify for BADR. The property company is usually held for income or for the long term, rather than sold with BADR.

If the aim is a clean trading company to sell with BADR, the demerger generally needs to happen well before the sale, so the conditions are met for the two years before it. A demerger right before a sale may not fix trading status for the earlier period, and it raises clearance, SDLT and anti-avoidance questions. Starting early keeps the most options open.

Start with the why and the after. Why does the client want to separate the businesses, and who should own what once it's done? Then ask what each business actually does, whether property is involved and whether a sale, investment or succession step is expected in the next few years. Those answers narrow the routes and highlight most of the risks before any detailed work starts.

A group structure chart, the latest statutory and management accounts, the share register and articles, any shareholders' agreement, a property schedule with values and charges, and a list of loans and guarantees. A note of past reorganisations and any HMRC clearances obtained is also valuable. With those, a specialist can usually give an initial view on the route quickly.

Because assets moved between group companies in the past can trigger charges when a company leaves the group in the demerger. A capital gains degrouping charge can arise for assets transferred within the previous six years, and SDLT group relief can be clawed back for property transferred within the previous three. Both periods need checking before the steps are designed.

Look at what the business actually does and where its income and value come from. Holding property to let, or holding cash and investments for return, is usually investment activity. Running a trade, even one that owns its premises, is trading. The distinction matters because the statutory demerger rules only cover trading activities, and several other reliefs depend on trading status.

Common ones include investment property sitting inside a trading company, shareholders wanting to go separate ways, a buyer or investor already in view, cash payments to balance a split, a shareholder moving abroad, recent intra-group property transfers, and low or uncertain distributable reserves. Any of these can turn a tax-neutral plan into a taxable one if the steps aren't designed around them.

Some accountants with regular reorganisation work do. For most practices, a demerger is occasional work that combines capital gains, corporation tax, income tax, stamp duty, SDLT, company law and clearance procedure. A specialist can take the technical design and clearance while the accountant keeps the client relationship and handles accounts, reserves and compliance.

Typically, provide the financial information, confirm the reserves position and the accounting entries, help the directors with the solvency statement or declaration of solvency, prepare any valuations or support for them, and deal with the post-demerger accounts and filings. The accountant's knowledge of the client's history is often the best source of facts the clearance application needs.

Before any steps are taken, and ideally before the client has settled on a route. Early involvement lets the steps be designed around the facts and gives time for HMRC clearance, which usually comes first. Being brought in after property has moved or a buyer has appeared still helps, but with fewer options.

With us, the client stays yours. We advise only on demergers and the reorganisations around them, and don't prepare accounts, carry out audits or give legal advice. You stay involved throughout and pick up the ongoing work afterwards.

Depending on the route: the 30-day return after an exempt distribution under the statutory demerger rules, stamp duty adjudication of share transfers within 30 days of signing, SDLT returns within 14 days of the land transaction, Companies House filings for any capital reduction, and the five-year chargeable payment and three-year SDLT clawback windows. Each should be in the post-completion plan.

Our demerger route finder asks a few questions about the businesses, the shareholders and any sale plans, and suggests which routes are likely to fit. It is a starting point for the conversation, not advice, but it can help an accountant frame the first discussion with a client and the specialist.

Using a route whose conditions the facts don't meet. The classic example is attempting a statutory demerger to separate investment property, when those rules only cover trading activities. The relief then fails, and the transfer can be treated as an ordinary distribution and a disposal. Choosing the route against the facts, rather than starting from the route a previous adviser used, avoids most problems.

Yes. A clearance only covers the transaction described in the application. If facts were left out, or the steps carried out differ from those described, the clearance may not protect you. Clearance also only covers the provisions applied for, so stamp duty, SDLT and other points still need to be right in their own terms.

Because several reliefs test the position at a particular moment, or look at what happens next. Moving property into a subsidiary, inserting a holding company, reorganising share classes and transferring the business each have their own conditions. Done in the wrong order, a step that would have been relieved can become taxable, or an earlier relief can be clawed back by a later step.

It can be. The capital gains reliefs for reconstructions generally expect shareholders to receive shares, not cash, and the company transferring the business must not receive consideration beyond the assumption of liabilities. After a statutory demerger, certain payments to shareholders within five years can be taxed as income. Any cash element needs planning and usually needs to be disclosed to HMRC.

Moving property within a group can usually be done without tax using group reliefs. But if the company that received the property later leaves the group, two charges can arise: a capital gains degrouping charge within six years and an SDLT group relief clawback within three years. A demerger is often exactly the event that makes a company leave the group.

Yes. Business Relief is not available on shares in a company whose business is wholly or mainly making or holding investments, which includes most property letting. Separating property into its own company can therefore take that company's value outside Business Relief. That can still be the right decision, but the inheritance tax effect should be weighed before the demerger, not discovered afterwards.

Often, yes. A company making an exempt distribution under the statutory demerger rules must make a return within 30 days. Stamp duty relief needs the stock transfer forms sent to HMRC for adjudication, and SDLT returns are usually required even where relief is claimed. Missing these steps can create penalties or leave a relief unclaimed.

It can. BADR looks at the company whose shares you sell, its trading status and your role and shareholding over the two years before the sale. A demerger creates new companies and changes what each one does. If a sale is likely within a few years, check how each shareholder's BADR position will look in the new structure before you commit.

No. Stamp duty reliefs for share transfers in reorganisations have conditions, including that shareholdings mirror each other and that there are no arrangements for someone to gain control of the acquiring company. Partitions, where shareholders end up owning different businesses, often fail the mirror-image test. Relief also has to be claimed through HMRC adjudication.

By asking a few questions at the start: what each business actually does, whether property has moved within the group in the last six years, who will own what afterwards, whether any shareholder will receive cash, and whether a sale is expected. Those answers point to most of the traps. Our checklist for accountants covers this in more detail.

Because SDLT is charged on the whole value of the property, not on a gain, and moving property between companies is normally a land transaction. Where the companies are connected, the chargeable consideration is usually taken to be at least market value. On a valuable commercial building the potential charge is large, so the availability of a relief, and the risk of it being withdrawn later, often shapes the whole demerger.

It can relieve a transfer between companies in the same 75% group. But it is not available where, at the time of the transfer, there are arrangements for the buying company to leave the group. And if the buying company leaves the vendor's group within three years while still holding the property, the relief is normally withdrawn. A demerger is often the very event that takes it out of the group.

The charge is broadly the SDLT that would have been due on the original transfer without the relief, calculated on the market value at the time of that transfer. Where only part of the property is still held, a proportion is charged. The buying company must file a further return within 30 days of the event that triggered the withdrawal.

Broadly, a company acquires all or part of another company's undertaking as part of a scheme of reconstruction, the only consideration is non-redeemable shares issued to all the target's shareholders, and each shareholder ends up with the same proportionate holdings in both companies. The acquisition must be for bona fide commercial reasons and not part of a tax avoidance scheme.

Reconstruction relief gives full relief but needs shareholdings to mirror each other. Acquisition relief does not need mirroring but only reduces SDLT to 0.5% of the chargeable consideration, and it requires the undertaking's main activity to be a trade that is not mainly dealing in land. So acquisition relief usually doesn't help where the business being moved is property letting.

Usually not, if the company simply holds property to let. Acquisition relief requires the undertaking being acquired to have, as its main activity, a trade that does not consist wholly or mainly of dealing in land. Holding property for rent is generally an investment activity rather than a trade, so this condition is unlikely to be met. Reconstruction relief, with its mirror-image test, is then the main option.

Not as such, but a sale within three years can be expensive. Reconstruction and acquisition relief are withdrawn if control of the acquiring company changes within three years of the transfer, or under arrangements made within that period, while it still holds the property. The SDLT originally relieved then becomes payable. Any planned sale should be factored in before the demerger.

Usually not. In a partition, different shareholders end up owning different companies, so each shareholder does not hold the same proportion in both. That fails the mirror-image condition for reconstruction relief. Acquisition relief may help where the business being moved is a trade, but not usually for property investment. A partition involving property needs particularly careful SDLT planning.

A gift or distribution of property normally has no cash consideration, but the market value rule for connected companies can still apply. There is an exception where a company distributes its assets, but it doesn't apply if group relief was claimed on the property within the previous three years. Liabilities taken over, such as a mortgage, can also count as consideration. The answer depends on how the steps are structured.

Property in Wales is subject to Land Transaction Tax and property in Scotland to Land and Buildings Transaction Tax, not SDLT. Both have their own group relief, reconstruction relief and acquisition relief, with conditions and withdrawal rules broadly similar to SDLT but not identical. A group with property in more than one nation needs each regime checked separately.

Yes. Claiming relief usually still means filing a land transaction return, and in England and Northern Ireland that is due within 14 days of the effective date. If a relief is later withdrawn, a further return is needed within 30 days. Wales and Scotland have their own return requirements.

It rewrote the anti-avoidance rules in sections 137 and 139 TCGA 1992. The old rules asked whether a transaction was for bona fide commercial reasons and not part of a tax avoidance scheme. The new rules apply where a main purpose of the arrangements is to reduce or avoid tax, and counteract it through just and reasonable adjustments rather than switching the relief off for everyone.

From 26 November 2025, the date of the Autumn Budget. For section 137 it applies to arrangements involving an issue of shares or debentures on or after that date. For section 139 it applies to arrangements involving a transfer of business assets on or after that date. The Finance Act 2026 received Royal Assent on 18 March 2026, but the changes took effect from the earlier date.

Yes. The old rules continue to apply where a company applied for clearance before 26 November 2025, HMRC or the tribunal then gave clearance, and the shares were issued, or the assets transferred, before 26 January 2026 or, if later, within 60 days of the clearance being notified. Outside that window, the new rules apply.

Not necessarily. The new rules counteract the tax advantage through just and reasonable adjustments, which can include disapplying the relief only so far as needed. HMRC's guidance gives examples where only the shareholder who entered into the avoidance arrangements is affected, while the relief continues for everyone else. The old automatic protection for holders of 5% or less has gone.

No. HMRC's guidance says it accepts the rule does not apply where the advantage consists solely of the deferral of a liability. Deferral is the purpose of the share exchange and reconstruction reliefs. The rule is aimed at arrangements that go further, such as extra features designed to take a gain permanently outside UK tax or to manufacture a relief.

Yes. Clearance remains available. Section 138 now asks HMRC to confirm that the exchange or reconstruction will be effected without arrangements to which section 137 applies. HMRC's guidance says a clearance confirms only that it considers there is no main purpose of avoiding tax on chargeable gains. A similar clearance remains available under section 139(5) for the company transferring the business.

Yes, in practice. A clear commercial purpose is still the best evidence that tax avoidance is not a main purpose. The statutory demerger rules have their own tests, and the stamp duty and SDLT reconstruction reliefs still contain a bona fide commercial reasons condition. A demerger application should still explain the commercial reasons fully.

Not directly. The statutory demerger conditions in sections 1073 to 1099 CTA 2010 were not rewritten by these changes. But many statutory demergers also involve share issues that rely on the capital gains reorganisation rules, and those can be subject to the new section 137. In practice, any demerger application should be prepared with the new test in mind.

Not in itself. HMRC's guidance gives an example of a family group using a capital reduction demerger to separate a business that is then sold to an Employee Ownership Trust, and says the rule doesn't apply because there are no additional arrangements to reduce capital gains tax. Separating trading and investment activities so a later share sale qualifies for the Substantial Shareholding Exemption, once the conditions are met, is also accepted.

The legislation allows adjustments to be made by an assessment or by modifying an assessment. HMRC's guidance refers to amending returns, closure notices after an enquiry and, where appropriate, discovery assessments. Because the adjustment is what is just and reasonable to counteract the advantage, its size depends on the arrangements rather than automatically taxing the whole gain.

Yes. The new section 139 test applies where a main purpose of the arrangements is to reduce or avoid capital gains tax, corporation tax or income tax. The section 137 test refers to capital gains tax and corporation tax. The transactions in securities rules, which deal separately with income tax advantages for shareholders, are unchanged.

No. There is no rule that simply prohibits a sale for five years. The five-year rule in sections 1086 to 1088 CTA 2010 is about chargeable payments, which are certain payments by the companies to their shareholders. A sale is a separate question. A sale arranged at the time of the demerger can stop the distribution being exempt in the first place, whenever it happens.

Broadly, a payment by a company concerned in the exempt distribution, made directly or indirectly to a member, in connection with shares in that company or another company concerned, which is either not made for genuine commercial reasons or forms part of a tax avoidance scheme. It must not itself be a distribution or exempt distribution, and must not be a payment within the same group.

If it is made within five years after the exempt distribution, the amount or value is charged to income tax, or corporation tax on income if the recipient is a company. For income tax it is treated as income of the recipient. The company making the payment can't deduct it in calculating its profits.

Yes. A transfer of money's worth can be a chargeable payment, not just cash. Where a chargeable payment consists of a transfer of money's worth, the person making it has to make a return to HMRC within 30 days, giving details of the transaction, the recipients and the value transferred.

No. A payment that is a distribution is excluded from being a chargeable payment, so ordinary dividends paid after a statutory demerger are taxed as dividends in the usual way. The concern is payments that would otherwise fall outside income tax, such as some capital payments for shares, loans or transfers of value connected with the shares.

It needs care. A purchase of own shares that qualifies for capital treatment is not a distribution, so it could fall within the chargeable payment rules if it lacks genuine commercial reasons or is part of a tax avoidance scheme. A buyback for a clear commercial reason, such as a shareholder retiring, may be fine. Clearance of the payment is available and often sensible.

Sometimes. A return is required within 30 days where, within five years of the exempt distribution, a person makes a payment or transfer that would be a chargeable payment except that it is made for genuine commercial reasons and isn't part of a tax avoidance scheme. The return explains why it is not a chargeable payment.

Yes. Section 1092 CTA 2010 allows a company to apply in advance for HMRC to confirm that a proposed payment will not be a chargeable payment. HMRC must respond within 30 days of a complete application, and can ask for further information first. It is worth considering for any significant payment to shareholders within the five years.

As well as the income charge on the payment, the exemption from the capital gains degrouping charge that normally applies on an exempt distribution falls away if a chargeable payment is made within five years. So a single payment can trigger a corporation tax charge on assets that moved within the group before the demerger, as well as income tax for the recipient.

No. The chargeable payment rules are part of the statutory demerger code in CTA 2010 and apply after an exempt distribution. Capital reduction and liquidation demergers don't rely on that code. They have their own anti-avoidance rules, including the main purpose test for reconstructions and the transactions in securities rules, which also look at payments to shareholders.

Often not. If a sale is planned or likely, the statutory route's conditions about acquisitions of control and sales of trades make it risky, and the five-year chargeable payment rules add another layer. A capital reduction demerger is often more flexible before a sale. The answer depends on how firm the plans are and what the buyer wants.

Whether, on the facts in the application, the transaction is caught by specific anti-avoidance rules. For example, a section 138 TCGA 1992 clearance confirms HMRC is satisfied the arrangements don't have a main purpose of avoiding tax on chargeable gains. HMRC is not approving the whole demerger or confirming every relief applies. Each clearance answers the particular question its section asks.

Yes. The purpose of the arrangements is central to most of the tests HMRC applies, so the application needs to explain clearly what the shareholders and the businesses are trying to achieve. Commercial reasons such as separating risk, letting management teams run their own business, or allowing shareholders to go separate ways are common. They need to be the real reasons, backed by the facts.

If a sale is planned or reasonably expected, it should be disclosed. Several reliefs and anti-avoidance rules look at what happens after the demerger, and a clearance given without knowing about a planned sale may not protect you. A possible sale doesn't automatically mean refusal, but HMRC will want to understand how it fits with the demerger.

Detailed enough that HMRC can understand every step and every party without guessing. HMRC's guidance asks for details of the companies, a step-by-step description of the transaction, shareholdings before and after, any consideration, the latest accounts and the provisions applied under. Diagrams of the structure before, during and after usually help.

Yes, and it often does. HMRC can ask for further particulars, usually within 30 days of receiving the application. Once you reply, HMRC normally has a further 30 days to decide. Questions are not a sign of refusal. They usually mean something in the application needs clarifying, which is why a complete first submission saves time.

Common triggers include cash or loan notes going to shareholders, a planned sale or new investor, a company being wound up soon after receiving cash, large cash balances moving to one company, a shareholder becoming non-UK resident, and unclear reasons for the chosen steps. Gaps in the description, such as missing shareholdings or values, also lead to questions.

No. The statutory clearances for demergers cover the direct tax provisions applied for. Stamp duty relief on share transfers is claimed separately through adjudication, and SDLT relief is claimed on the land transaction return. Their conditions, including the commercial reasons tests in those reliefs, need to be checked on their own terms.

It is rarely compulsory, but it is usually advisable. Which clearances apply depends on the route. A statutory demerger typically involves section 1091 CTA 2010, while capital reduction and liquidation demergers usually involve sections 138 and 139(5) TCGA 1992. A transactions in securities clearance is commonly included for all routes.

Preparatory work such as valuations, legal drafting and bank discussions can usually carry on. Steps that the clearance relates to should normally wait, and some clearances must be obtained before the relevant step. Starting implementation early removes the main benefit of clearance, which is certainty before anything irreversible happens.

Only for the transaction it describes. If the steps, timing, parties or purpose change materially, the clearance may no longer apply. Some changes are minor, but others mean going back to HMRC with an updated application. Take advice before departing from the cleared plan.

Applications are handled within HMRC's clearance team. HMRC's guidance says market-sensitive applications should be clearly marked as such. For private companies, the main practical point is that the application will describe the shareholders' plans in some detail, so everyone involved should agree what it says.

Demerger Tax is the specialist demerger practice of the team behind Transaction Tax Partners, our M&A tax practice. We set it up because demergers are a distinct piece of work, with their own reliefs, company law steps and HMRC clearances. Demerger Tax is a trading name of ASWATAX LTD, a UK company. Advice is led by a Chartered Tax Adviser, with a Big 4-trained team.

They are run by the same team. Transaction Tax Partners advises on the tax side of buying, selling and restructuring businesses. Demerger Tax focuses only on splitting companies and groups. If your demerger is part of a wider plan, such as a sale of one of the businesses afterwards, the same team can help with both, so nothing gets lost between advisers.

The team has more than 15 years' experience and has helped separate more than £100m of assets. We have made over 50 HMRC clearance applications, and 100% of the clearances we applied for were obtained. Our work covers groups up to £40m, including property and trading separations, shareholder splits and reorganisations before a sale.

Advice is led by a Chartered Tax Adviser (CTA), the senior professional qualification of the Chartered Institute of Taxation. The wider team is Big 4-trained, and includes Chartered Accountants qualified with the ICAEW and the ACCA. That mix matters on a demerger, which needs both tax technical work and a firm grasp of company accounts and distributable reserves.

A demerger touches capital gains tax, corporation tax, income tax, stamp duty and SDLT at once, and each relief has its own conditions and anti-avoidance rules. It also needs company law steps in the right order and, usually, HMRC clearance first. Many accountants handle the annual work well and bring in a specialist for this one-off project, keeping the client relationship themselves.

Through Demerger Tax, yes. We advise on demergers and the reorganisations that go with them, such as inserting a holding company, moving property between companies and splitting a group between shareholders. For a sale or acquisition afterwards, the team behind Transaction Tax Partners can help. We don't prepare accounts, carry out audits or give legal advice.

Mostly owner-managed UK groups worth roughly £1m to £50m, including family companies, property-rich trading businesses and groups with several shareholders. Our largest demerger so far involved a group of around £40m. If your business is smaller or larger, get in touch anyway and we'll tell you honestly whether we're the right fit.

All the main UK routes: capital reduction demergers, liquidation (section 110) demergers, statutory demergers under the Corporation Tax Act 2010, and partition demergers that split a group between shareholders. Most also involve a new holding company first. The right route depends on the facts, so we compare the options before recommending one.

Yes. We prepare and submit the clearance applications a demerger usually needs, answer HMRC's questions and keep you informed while they consider them. We aim to get clearances in place before any step is taken. After the demerger, we can also help with the returns, stamp duty filings and SDLT relief claims that follow.

Our registered office is at 124 City Road, London EC1V 2NX. We advise companies and their shareholders across the UK. Most of the work is done by video call, phone and email, which suits busy owners and fits around the timetable of your lawyers and accountants. If a meeting in person would help at a key stage, just ask.

Yes, and we prefer to. Your lawyer usually drafts the resolutions, transfers and liquidation or capital reduction documents, and your accountant prepares the accounts and reserves figures. We lead on the tax design and clearances and coordinate the order of steps, so everyone works from one plan. If you don't have a corporate lawyer, we can suggest how to find one.

We respond the same working day. Demergers often have a deadline behind them, such as a buyer waiting, a shareholder who wants to leave or a refinancing. Tell us the date that matters and we'll plan the clearance applications and company law steps around it. That applies from the first enquiry right through to the final filings after the demerger.

Yes. The adviser you speak to first is the adviser who works on your demerger. You won't be handed to a junior team or passed between departments. That continuity matters because demerger advice depends on understanding the history of your companies and what each shareholder wants. Advice is led by a Chartered Tax Adviser throughout, from design to clearance to implementation.

No adviser can honestly guarantee that. Many demergers can be carried out without an immediate tax charge where the conditions for the reliefs are met and HMRC has given clearance. Our job is to check those conditions carefully, design the steps to meet them and tell you plainly about any tax that can't be avoided.

Demerger Tax is a trading name of ASWATAX LTD, a limited company registered in England and Wales. ASWATAX LTD is registered with the Chartered Institute of Taxation as Chartered Tax Advisers and for the purposes of anti-money laundering legislation. We'll ask for identity documents before starting work, as the money laundering rules require.

So the adviser you speak to is prepared. Knowing roughly what the group does, what you want to separate, who the shareholders are and how quickly you need to move lets the first call focus on your options rather than background questions. It also helps us tell you quickly whether we're the right fit.

About two minutes. There are three short steps: who you are, the companies and what you want to achieve, and how to reach you. You don't need any documents to fill it in, and you can add the detail on the call itself. If you'd rather not use a form, you can email or phone us instead and we'll respond the same working day.

A band, such as £1m to £5m or £5m to £20m, is enough to show the scale of the work. Value affects which reliefs matter most, how much stamp duty or SDLT could be at stake and how the steps are planned. Few owners have a current valuation when they first call, and you don't need one.

That's common. Choose the band you think is closest, or 'not sure yet'. A rough idea from the balance sheet and any property values is enough for a first conversation. If a valuation is needed later, for example to set share values on a split between shareholders, we'll explain why and when.

If your group is worth £1m or more, or you're an accountant or lawyer introducing a client, you can usually choose a time to talk straight away. Otherwise, we respond the same working day. Either way, your call is with the senior adviser who would design your demerger. You'll get a confirmation so you know the enquiry has arrived.

Yes. Fill in the form as normal and we'll respond the same working day. Smaller companies can still benefit from a demerger, for example to separate a property. But the professional costs of clearances and company law steps need to make sense against the benefit, and we'll be honest about whether they do.

No. Rough numbers are fine: an idea of what each business or property is worth, what's owed against it and how the shares are held. Many people book before they've spoken to their accountant about a demerger at all. The adviser will go through the detail with you. Precise numbers come later, once a route is chosen.

They're used only to respond to your enquiry and prepare for the call. The first conversation is confidential, so you can explain your situation openly, including disagreements between shareholders or a sale that isn't public yet. You can keep names out of the form if you'd rather. Our privacy policy explains how we handle personal data.

No. The first conversation is without obligation. It's about whether a demerger suits your situation and, if so, which routes are worth exploring. If it makes sense to work together, we'll set out the scope and next steps in writing so you can decide in your own time. There's no charge for the first conversation.

Usually what you want to separate and why, how the companies and shares are held today, any property involved, the timetable and anything already in train, such as a sale. The adviser will outline which demerger routes might fit and the main tax questions. It's a conversation, not formal advice.

That's fine. Describe what you're trying to achieve, such as protecting property from trading risk, letting a shareholder go their own way or preparing to sell part of the business. Sometimes a simpler step, like a share buy-back or a holding company, does the job. We'll tell you if so.

Yes. Choose the introducer option on the form and tell us whether you'd like us to speak to you first or to the client directly. We advise only on demerger tax and related reorganisations, so we won't compete for your client's accounts, audit or legal work. You can describe the client in general terms at first if you prefer.

It depends on the route and on HMRC. Most demergers need clearance before any step is taken, and HMRC usually has 30 days from a complete application to decide, longer if it asks questions. Preparing the application and the accounts figures also takes time, so it's worth talking early. We'll give you a realistic timetable on the call.

Yes, and the sooner the better. A planned sale changes which demerger routes and reliefs are available, and HMRC needs to be told about it in any clearance application. Some reliefs can be lost if the steps are in the wrong order, so it's best to speak to us before heads of terms are agreed.

Yes. Where shareholders want to go their separate ways, it often helps for all of them, or their advisers, to hear the same explanation of the options. If relations are strained, we can speak to one side first and agree how best to involve everyone else. Each shareholder may also want their own adviser.

Yes. Each case study is based on a real demerger or reorganisation our team advised on. They're anonymised, so they show the sector and a value band for the group, but not the client's name or anything else that could identify them. We don't publish invented or composite examples. The facts are kept as they happened.

Demergers often involve private family and shareholder matters, property values and plans to sell, so we don't name clients or include identifying details. Anonymising the case studies lets us show the kind of problems we solve and the routes we use, while keeping our clients' affairs confidential. Clients can trust us with sensitive plans.

Each one sets out who the client was in general terms, what they wanted to separate and why, the steps we used, the HMRC clearances obtained and the outcome. It also gives the sector and a value band, so you can judge whether the situation is similar to yours. Most also answer common questions about that type of demerger.

An exact figure could help someone identify the client, especially in a local market or a specialist sector. A band, such as £20m to £50m, shows the scale of the group without revealing who it is. We mainly advise owner-managed groups worth roughly £1m to £50m. The band is enough to show the kind of group involved.

Not necessarily. Every demerger depends on its own facts: whether each business is trading or investment, how the shares are held, the reserves available, any planned sale and what each shareholder wants. The case studies show how similar issues can be handled, not a guaranteed result for you. We'd look at your facts first.

Get in touch and tell us about your group. A senior adviser can tell you which points are likely to apply to you and which aren't, and outline the routes worth considering. The first conversation is confidential and without obligation, and we respond the same working day. Mention the case study when you get in touch.

Only in general terms. To protect confidentiality, we won't share details that could identify a client. On a call, though, we can explain how similar situations are usually approached, why a particular route was chosen over the alternatives and what to watch for in your own case. That's usually more useful than more detail about someone else.

Our team has made more than 50 HMRC clearance applications, and 100% of the clearances applied for were obtained. Across that work we've helped separate more than £100m of assets, in groups up to £40m. The case studies here are a small, anonymised selection. Our team has more than 15 years' experience in this work.

Not all, though separating property from a trading business is one of the most common reasons for a demerger. Other common situations include shareholders who want to go their separate ways and families dividing a group between the next generation. We'll add more examples as clients give permission. Each one names the situation it covers.

In each case study we explain which clearances were sought and what happened. Across all our work, 100% of the HMRC clearances we've applied for were obtained, across more than 50 applications. That reflects careful preparation, but clearance always depends on the facts and on HMRC's view. We never promise an outcome in advance.

Because many demerger routes need one. Inserting a new holding company through a share-for-share exchange can create the structure the later steps rely on, for example so that a capital reduction can be made at the right level. Where the conditions are met, the exchange can usually be done without an immediate capital gains tax charge.

Not really. The cost of a demerger depends mainly on the number of companies and steps, whether a liquidator is needed and how complex the clearance applications are. A case study shows what was done, but the right route for you depends on your own facts, which we'd discuss on a call.

They show what can be achieved when the steps are planned in the right order and clearance is obtained first. They are not a promise that every demerger can be done without tax. Sometimes a small amount of tax is unavoidable, or a relief isn't available, and we say so at the start.

They show the kinds of problems an adviser has dealt with in practice. When comparing advisers, ask whether they've worked on demergers like yours, which routes they've used, how they handle HMRC clearances and who will actually do the work. Specific answers are a good sign. Vague answers are a warning sign.

Only with your permission, and always anonymised. Once your demerger is complete, we may ask whether we can describe it in general terms. You'll see the wording before anything is published, and you can say no without it affecting our work for you. Some clients prefer not to be featured at all, and that's entirely fine.

The quickest way is the Book a call form, which takes about two minutes and asks the questions the adviser needs. You can also email taxadvisory@aswatax.co.uk, or call or WhatsApp +44 7537 143695. However you get in touch, we respond the same working day, and your enquiry goes straight to a senior adviser.

Yes. You can message or call us on WhatsApp at +44 7537 143695. Many owners find it easier to send a quick note between meetings, for example to describe their group and what they want to separate. We respond the same working day and can then arrange a proper call.

We respond the same working day. If you use the Book a call form and your group is worth £1m or more, or you're an accountant or lawyer introducing a client, you can usually choose a time to talk straight away rather than waiting for a reply. If you'd rather talk first, call or WhatsApp +44 7537 143695.

A senior adviser reads your enquiry and arranges a confidential conversation. On that call we'll ask about the companies, the shareholders, what you want to separate and why, and any deadline such as a sale. We'll then tell you which routes are likely to work and whether we can help.

A rough picture is enough. It helps to know which companies are in the group, who owns the shares, what the businesses and properties are, roughly what they're worth and why you want to split them. A recent set of accounts and a group structure chart are useful but not essential for the first conversation.

Yes. Email taxadvisory@aswatax.co.uk with a short description of the group and what you'd like to achieve, plus the best way to reach you. The form can be quicker because it asks the right questions up front, but a short email works just as well. We'll reply the same working day and suggest a time to talk if that would help.

Yes. Accountants, solicitors and other advisers often get in touch on behalf of a client, by form, email or phone. We focus on demerger tax, so we don't take over accounts, audit or legal work, and the client relationship stays with the adviser who introduced us. They can also join the first call with you, if that's easier.

Yes. Demergers often involve sensitive family or shareholder matters, such as a disagreement between directors or a sale nobody else knows about yet. What you tell us is used only to respond to you and advise you. You can describe the situation in general terms first if you prefer. Nothing is shared with anyone else without your agreement.

A senior adviser, not a sales team. The person you speak to is the person who would design your demerger and deal with HMRC, so the first conversation can get into the detail straight away. Advice is led by a Chartered Tax Adviser, backed by a Big 4-trained team. You won't be passed on to someone else later.

No. Many owners get in touch when they're only exploring the idea, for example because they want to protect property from trading risk or a shareholder wants to step back. Talking early usually leaves more options open, and a demerger isn't always the answer. We'll tell you if something simpler would work.

Yes. We advise on UK companies across England, Wales, Scotland and Northern Ireland. Some points differ by location, for example land transaction tax in Wales and land and buildings transaction tax in Scotland replace SDLT for property there. We'll take that into account when planning any property transfers. The demerger reliefs for corporation tax and capital gains are UK-wide.

We work normal UK business hours, Monday to Friday, and we respond to enquiries the same working day. If you get in touch in the evening or at the weekend, we'll reply on the next working day. If a deadline is pressing, say so in your message and we'll prioritise it.

No. The first conversation is without charge or obligation. It's a chance for us to understand what you want to achieve and for you to judge whether we're the right people to help. If it makes sense to work together, we confirm the scope in writing before any work starts.

Yes, if it helps, but you don't need to. Useful documents include the latest accounts for each company, a group structure chart and a list of properties with rough values. Please don't send anything you'd rather discuss first. We'll give you a proper information list once we've spoken. Email is fine for most documents.

Our registered office is at 124 City Road, London EC1V 2NX. Most demerger work is done by video call, phone and email, so we advise owners and their advisers right across the UK without anyone needing to travel. Tell us if a face-to-face meeting would help at a particular stage.

No. Through Demerger Tax we advise only on demergers and the reorganisations around them, together with the shareholders' related tax position. We don't prepare accounts, carry out audits, give legal advice or manage investments, so we won't be pitching for your work. Your client stays your client, and you stay the lead adviser throughout.

As soon as a client mentions wanting to separate a property, split the business between shareholders, or sell part of the group. Early involvement matters because clearance is usually needed before any step, and some quick fixes, such as moving a property out by dividend, can create a tax charge that a planned demerger would avoid.

We respond the same working day. An initial view usually comes as a short call or note setting out the likely routes, the main tax issues and what we'd need to look at in more detail. That gives you something useful to take back to the client before anyone commits to fees.

Yes. You stay the lead adviser. We can report through you, join your calls with the client, or work directly with the client and keep you copied in, whichever suits you. Tell us at the start which you prefer and we'll stick to it. Our engagement covers only the demerger tax work agreed at the start.

A short outline is enough: a group structure chart, who owns the shares, what each company does, any properties and rough values, and what the client wants to achieve. If a sale or refinancing is planned, tell us. We'll say what else we need if the case turns out to be more complex.

Mainly accounts information. Demerger steps often depend on distributable reserves, the book value of investments and, for a capital reduction, a directors' solvency statement. We'll give you a clear list of figures and the dates they're needed, so the accounts work fits around the clearance timetable rather than delaying it.

Mostly accountants in practice, corporate and private client solicitors, and wealth managers and financial planners. They bring us in when a client's restructuring needs specialist tax design and HMRC clearances that sit outside their day-to-day work. We fit around how each adviser prefers to work. Some introduce one client a year, others several.

Yes. The solicitor drafts the share exchange agreement, resolutions, transfer documents and any capital reduction or liquidation papers. We provide the step plan they follow and review the documents against it, so the legal steps match what HMRC was told in the clearance application. We also confirm when each step can safely be taken, once HMRC clearance is in place.

Typically owner-managed UK groups worth roughly £1m to £50m, including family companies and property-rich trading businesses. Our largest demerger so far involved a group of around £40m. For smaller companies we'll be honest about whether the benefits of a demerger justify the professional costs. Every enquiry gets the same senior attention, whatever the size.

Separating investment property from a trading company, shareholders who want to go their separate ways, preparing a group so one business can be sold, and family succession where different children will run different parts. Each calls for a different route, and some for a combination of steps. We'll explain which route fits the facts.

Advice is led by a Chartered Tax Adviser, supported by a Big 4-trained team that includes ICAEW and ACCA Chartered Accountants. The team has more than 15 years' experience and has helped separate £100m+ of assets, with 100% of HMRC clearances obtained across 50+ applications. The same senior adviser stays involved from the first call to the final filing.

Yes, though it's better to speak to us before any step is taken. If shares have already been issued or a property transferred, we'll review what's been done, identify any tax exposure and see whether the remaining steps can still qualify for relief. Sometimes a change of route is the answer.

Demerger Tax is the specialist demerger practice of the team behind Transaction Tax Partners. If a demerger is followed by the sale of one of the businesses, the same team can help with the sale tax too, so your client doesn't need to brief a new adviser midway through. You stay the lead adviser throughout.

Use the Book a call form and choose the introducer option, email taxadvisory@aswatax.co.uk, or call or WhatsApp +44 7537 143695. Let us know whether you want us to report through you or work directly with the client, and roughly what the client is trying to achieve. We respond the same working day.

Yes. You can describe the client's situation in general terms without naming them, and anything you tell us is used only to respond to you. Once the client decides to go ahead, we'll carry out our usual identity checks with them directly, as the money laundering rules require. There's no charge for that first conversation.

A demerger is the splitting of a company or group so that one or more businesses or assets end up in separate companies, usually owned by the same shareholders or divided between them. It's the opposite of a merger. In the UK it's commonly used to separate property from trade, split shareholders or prepare part of a group for sale.

In a direct demerger, a company distributes shares in its subsidiary straight to its shareholders. In an indirect demerger, the company transfers a subsidiary or a trade to a new company, which issues its own shares to the shareholders. The statutory demerger rules in sections 1076 and 1077 CTA 2010 cover each type.

Both separate businesses or assets into new companies owned by the shareholders. A capital reduction demerger uses a reduction of share capital, usually supported by a directors' solvency statement, so the company continues. A liquidation demerger uses section 110 of the Insolvency Act 1986, with a liquidator winding up the company and transferring its parts.

A partition demerger splits a group between different shareholders, so that each ends up owning a separate business on their own rather than everyone sharing everything. It's often used when shareholders want to go their separate ways. The reliefs that can apply depend on the route used and on the shareholdings matching the value each person receives.

An exempt distribution is a demerger distribution that meets the conditions in sections 1075 to 1099 of the Corporation Tax Act 2010. It isn't treated as income for the shareholders, so no income tax arises on it. The conditions include that the companies are trading and that the demerger isn't part of tax avoidance or a planned change of control.

A chargeable payment is a payment, broadly one made otherwise than for genuine commercial reasons, connected with an exempt distribution and made within five years after it, for example cash paid to a shareholder by a company involved. It's taxed as income and can't be deducted by the company paying it. Clearance can be sought in advance.

A solvency statement is a statement made by all the directors of a private company that it can pay its debts now and over the next 12 months. Under section 642 of the Companies Act 2006, it supports a reduction of share capital by special resolution without going to court, and must be made no more than 15 days before the resolution.

It means an asset moves between companies at a value that produces neither a gain nor a loss for the company transferring it, so no tax arises on the transfer. The receiving company takes over the original cost. It applies, for example, to transfers within a capital gains group and to qualifying reconstructions under section 139 TCGA 1992.

A degrouping charge can arise when a company leaves a group within six years of receiving an asset from another group company on a no gain, no loss basis. The deferred gain comes back into charge. Where the company leaves through a share disposal, the gain is usually added to the sale proceeds of the shares instead.

Stamp duty is charged on documents transferring shares, at 0.5% of the price, and stamp duty reserve tax covers agreements to transfer shares. Stamp duty land tax is charged on buying land and property in England and Northern Ireland. Scotland and Wales have their own land taxes. Demergers can involve both, and each has its own reliefs.

It's where shareholders swap their shares in a company for new shares in another company, often a new holding company inserted at the top of the group. Where the conditions in section 135 TCGA 1992 are met, the shareholders don't pay capital gains tax at that point. It's often the first step in a capital reduction demerger.

For capital gains tax, a scheme of reconstruction is defined in Schedule 5AA TCGA 1992. Broadly, new ordinary shares are issued only to the existing shareholders, in proportion to their holdings, and the business carries on in the successor companies. Many demergers are structured to meet this definition so that sections 136 and 139 can apply.

Distributable reserves are the accumulated, realised profits a company can legally pay out to shareholders, less realised losses. Some demerger steps, such as distributing shares in a subsidiary, need enough distributable reserves. If there aren't enough, a reduction of share capital can sometimes create them, which is one reason accounts figures matter early.

It's an advance clearance under section 701 of the Income Tax Act 2007 confirming that HMRC won't use the transactions in securities rules to counteract an income tax advantage. Those rules can treat what looks like a capital receipt as income. Demergers and share exchanges commonly seek this clearance alongside section 138 TCGA 1992 clearance.

A clawback period is a set time after a relief is claimed during which certain events can withdraw it. For example, SDLT group relief can be withdrawn if the buyer company leaves the group within three years, and SDLT reconstruction or acquisition relief can be withdrawn if control of the acquiring company changes within three years.

Yes. If you've come across a demerger or reorganisation term that isn't here, email taxadvisory@aswatax.co.uk and we'll consider adding it. We review the glossary when the law changes to keep the definitions accurate and in plain English. If you need a term explained urgently for your own situation, book a call and a senior adviser can talk you through what it means in practice.

You tell us briefly about the companies and what you want to separate, through the Book a call form, by email or by phone. We respond the same working day and arrange a confidential first conversation with the senior adviser who would design your demerger. There's no charge or obligation for that conversation.

Broadly: understanding the group and your goals, choosing the route, designing the steps, applying for HMRC clearances, then carrying out the company law steps with your lawyer, such as share exchanges, resolutions and transfers. Afterwards come the stamp duty and SDLT filings and tax returns. We coordinate the whole sequence so nothing is done out of order.

Often a few months from first call to completion, though it varies. Preparing the clearance application, waiting for HMRC, which usually has 30 days from a complete application to respond, and then carrying out the legal steps all take time. A liquidation demerger can take longer because a liquidator is involved. We'll give you a realistic timetable early on.

Because the reliefs that make a demerger tax-efficient have conditions and anti-avoidance rules. Clearance lets HMRC confirm, before any step is taken, that it accepts the transactions are not mainly about avoiding tax. If HMRC raises questions, we can answer them or change the plan while it's still a plan, rather than unpicking completed transactions.

We look at what's being separated, whether each part is a trade or an investment such as let property, how the shares are held, the reserves in each company, any planned sale and what each shareholder wants. Those facts usually point to a capital reduction, liquidation, statutory or partition route. We explain the trade-offs before recommending one.

A senior adviser, from the first call to the final filing. Advice is led by a Chartered Tax Adviser, supported by a Big 4-trained team that includes ICAEW and ACCA Chartered Accountants. You won't be passed to a junior team or between departments, so you won't have to explain your group twice.

Before work starts, we confirm the scope in an engagement letter. It sets out what we'll do, what we need from you and your other advisers, and the expected timetable. If the plan changes, for example because a buyer appears or a shareholder's position changes, we agree any change in scope with you first.

Usually recent accounts for each company, the share register and articles, details of any properties and their values, loans and guarantees, past reorganisations and what each shareholder wants. If a sale is planned, we'll need to know about it. We send a specific list after the first call, so you only gather what's relevant.

Yes. A demerger needs all three. Your lawyer usually drafts the resolutions, share documents and transfer agreements; your accountant provides the accounts and confirms distributable reserves. We design the tax steps, write the clearance applications and keep everyone working from the same step plan, joining calls where useful. That avoids gaps, duplication and steps taken out of order.

Up-to-date figures. Several demerger steps depend on the company's accounts, such as whether there are enough distributable reserves or whether a capital reduction is needed first, and the directors may have to sign a solvency statement. We'll tell your accountant exactly what's needed and when, so it doesn't hold up the timetable.

In our experience, no. The company law steps, such as issuing shares, reducing capital, transferring property or appointing a liquidator, need properly drafted documents and filings at Companies House. Mistakes can make a step invalid or lose a relief. If you don't have a corporate lawyer, we can suggest how to find one.

We respond the same working day. We plan around the dates that matter to you, such as a sale timetable, a bank's refinancing deadline or a year end. If something urgent comes up, like a question from HMRC or a change in the documents, tell us the deadline and we'll prioritise it.

Most work happens by video call, phone and email, which suits owners and advisers across the UK. Some clients like to meet at a key stage, such as when shareholders are deciding between routes. Ask us if an in-person meeting would help. Whichever way we meet, you deal with the same senior adviser, and we keep a written record of the key decisions so everyone is clear on what's been agreed.

We help with the follow-through: stamp duty adjudication or filings, SDLT returns and relief claims where property moved, and the information that needs to go into company and personal tax returns. We'll also remind you of any clawback periods, during which certain changes could bring a relief back into charge.

It's rare when an application is well prepared, and 100% of the clearances we've applied for were obtained across 50+ applications. If HMRC has concerns, it usually asks questions first. We answer them, adjust the steps if needed and, where appropriate, reapply. Because nothing has been implemented yet, you keep your options open.

They cover the tax side of splitting UK companies and groups. Topics include choosing between capital reduction, liquidation, statutory and partition demergers, HMRC clearances, capital gains tax and corporation tax, stamp duty and SDLT reliefs, distributions, and situations such as separating property from a trading business or preparing for a sale.

Owners of UK private companies, and the accountants, solicitors and wealth managers who advise them. They're written in plain English and explain any technical terms, so you don't need a tax background to follow them. Our glossary explains the terms you're likely to meet. Each article focuses on one question, so you can read only what's relevant to you.

No. The articles are general information, not advice. Whether a demerger works without a tax charge depends on the facts, the conditions for each relief and the anti-avoidance rules, and tax law changes. Speak to an adviser about your own position before taking any step. Taking a step too early can lose a relief.

Each article is dated, so you can see when it was published or last reviewed. Demerger law changes from time to time, including through Finance Acts that adjust anti-avoidance rules, so check the date and take advice on the current position before acting on anything you read. We update articles when the law changes.

Start with our demerger tax advice page, which explains the main routes and when each is used, then try the demerger route finder. Our free guide, 'Demergers: the owner's tax guide', brings the main points together. The articles then look at individual issues in more depth. The glossary helps with any unfamiliar terms.

Common reasons include separating property from a trading company, so it's protected from the risks of the trade or kept when the business is sold; shareholders wanting to go their separate ways; preparing one business for sale; and family succession. Each points towards different routes, which our articles explain. Some owners have more than one reason.

Yes. Most demergers rely on one or more HMRC clearances, such as under section 138 TCGA 1992, section 701 ITA 2007 or section 1091 CTA 2010. Our articles explain what each clearance covers, when it's needed and how long HMRC usually takes, without turning into a drafting manual. We also explain what HMRC expects to see.

Yes. Moving shares or property between companies can trigger stamp duty or stamp duty land tax, and the reliefs for reconstructions and group transfers have strict conditions and clawback rules. We explain how they work in plain English and where the common traps are. Stamp taxes are often the largest potential cost in a property demerger, so they deserve early attention.

You can sign up to our newsletter using the form in the website footer and unsubscribe at any time. New articles are also added to this page as they're published. If a change affects a demerger you're planning, we'll tell you directly if you're a client. We don't send frequent emails.

Get in touch through the Book a call form, by email or by phone. A senior adviser can tell you whether the point applies to your situation and what your options are. The first conversation is confidential and without obligation, and we respond the same working day. Mention the article if it helps.

Yes. Selling part of a group after a demerger raises its own issues, because some demerger reliefs have conditions about later changes of ownership. Our articles explain why the order of steps and the timing of a sale matter, and why a sale must be disclosed to HMRC in any clearance application.

Yes, you can share a link to any article. They're a useful way to start a conversation about whether a demerger might suit the business. Bear in mind they're general information, so anyone reading them should take advice on their own position before acting. Accountants can also introduce clients to us.

Yes, where it connects to a demerger. Families sometimes split a group so that different children run different parts, or to keep investment property separate from a trade. That can affect inheritance tax reliefs, so we explain the points to consider before the steps are taken. Business Relief changed from 6 April 2026, which makes this more relevant.

Yes. The articles are written and reviewed by our team, which is led by a Chartered Tax Adviser and includes Big 4-trained Chartered Accountants. We cite legislation where it helps, so you or your adviser can check the source. They're not written by marketing writers or generated without review, and every article is checked against the current law before it's published.

Most demerger rules apply across the UK, because corporation tax, capital gains tax and stamp duty on shares are UK-wide. Property is different: land and buildings transaction tax applies in Scotland and land transaction tax in Wales, instead of SDLT. Where that matters, our articles point it out. Those taxes have their own reliefs.

The main tool is the demerger route finder, which asks a few questions about your companies, shareholders and plans, then shows which demerger routes are likely to be worth exploring and why. We'll add further tools over time. Each one explains its assumptions so you can see what it does and doesn't cover.

It asks about what you want to separate, whether each part is a trade or an investment such as let property, how the shares are held and whether a sale is planned. It then points you towards the routes that usually suit those facts, such as a capital reduction, liquidation, statutory or partition demerger, with a short explanation.

Yes. The tools are free, and you don't need to sign up or give your name or email address. There's no obligation to contact us afterwards, though we're happy to talk through your results if they raise questions about your own company. You can use them as often as you like, and share the link with your accountant or business partner.

No. The tools run in your browser, and the answers you enter aren't stored or sent anywhere. If you accept analytics cookies, we record only that a tool was used, not what you entered. Results aren't saved, so make a note of anything you want to keep. That keeps your plans private.

It's a starting point, not advice. Demerger routes depend on detailed conditions, such as whether each company is trading, the reserves available, the way shares are held and any arrangements for a sale. The route finder simplifies these. Have your position reviewed by an adviser before taking any step. It can't see your accounts.

Because more than one route can often work on the same facts. For example, both a capital reduction demerger and a liquidation demerger can separate property from a trade. The choice then depends on cost, timing, the company's reserves and what the shareholders prefer, which are best discussed with an adviser.

A planned sale changes which routes are suitable. A statutory demerger, for example, can't be part of arrangements for someone outside the shareholders to take control afterwards, and some stamp duty and SDLT reliefs can be withdrawn if control changes. HMRC also needs to be told about a planned sale in any clearance application.

Several demerger reliefs depend on it. A statutory demerger under the Corporation Tax Act 2010 needs the companies involved to be trading companies or members of a trading group. Holding property to let is usually an investment activity, so separating it typically calls for a capital reduction or liquidation demerger instead.

Owners of UK private companies who are thinking about splitting the business, and the accountants and solicitors who advise them. They're particularly useful before a first conversation with an adviser, because they help you think through the facts that will decide which route fits. They're not a substitute for advice on your own facts, but they help you ask the right questions.

Yes, for the route choice, because the corporation tax and capital gains rules for demergers apply across the UK. If property moves between companies, Scotland and Wales have their own land transaction taxes instead of SDLT, which the tools don't calculate. An adviser can take those into account. Most of the route logic is the same.

The route finder doesn't calculate tax. A demerger designed well and cleared by HMRC can often be carried out without an immediate tax charge, but that depends on meeting each relief's conditions. Where some tax can't be avoided, the amount depends on detailed figures an adviser needs to review. We can estimate it on a call.

Yes. Accountants and solicitors often find the route finder helpful for structuring a first conversation with a client who has mentioned splitting the business. If the results suggest a demerger is worth exploring, you can introduce the client to us and stay the lead adviser. No sign-up is needed, so it's quick to use in a meeting.

Each tool is reviewed when the law changes and the page shows when it was last reviewed. Demerger rules don't change often, but Finance Acts sometimes amend the anti-avoidance and clearance provisions. If you're acting on a result, check with an adviser that nothing has changed. The rules used are explained on each tool page.

If the results suggest a demerger might suit you, the next step is a conversation with an adviser before you take any action. Don't move property, issue shares or pay dividends to start the process yourself, because the order of the steps and HMRC clearance usually decide whether reliefs are available.

Book a call, email taxadvisory@aswatax.co.uk, or phone or message +44 7537 143695 on WhatsApp, and we'll respond the same working day. Your enquiry goes to a senior adviser, with advice led by a Chartered Tax Adviser and a Big 4-trained team behind it. It helps to mention which tool you used and what it suggested, so the adviser can pick up from there.