Property and stamp taxes

Because owner-managed trading companies often build up the property they trade from, or invest surplus profits in property. Owners then want to protect that property from the risks of the trade, keep it when the trade is sold, or pass it to different family members. A demerger can move the property into a separate company owned by the same shareholders.

Potentially capital gains or corporation tax on the transfer, SDLT (or Land Transaction Tax in Wales, LBTT in Scotland) on the land transaction, and stamp duty on any shares transferred. Reliefs can often remove these where the conditions are met. SDLT reliefs have their own conditions and clawback rules, separate from the capital gains reliefs.

Usually a relief being withdrawn after the event. Group relief can be clawed back if the company holding the property leaves the group within three years, and reconstruction or acquisition relief can be withdrawn if control of the acquiring company changes within three years. A demerger, or a sale soon after one, is often exactly the trigger.

It can be, at 0.5% of the consideration on a transfer of shares, although many demerger steps involve newly issued shares rather than transfers, or qualify for relief. Reliefs for share-for-share acquisitions have conditions, including mirror-image shareholdings and no arrangements for someone to obtain control. Partitions often fail those conditions.

Often, where a relief applies in full. Reconstruction relief can remove SDLT entirely where shares are issued to all the shareholders in mirror-image proportions and the commercial reasons tests are met. Where the conditions aren't met, the charge can be based on market value because the companies are connected. It depends on the steps and who ends up owning what.

In England and Northern Ireland, SDLT on non-residential and mixed-use freehold property is 0% up to £150,000, 2% on £150,001 to £250,000 and 5% above £250,000. Wales and Scotland have their own taxes and rates. Because the charge is on value rather than gain, it can be significant on even a modest commercial property.

Not always. The statutory demerger rules don't cover property investment, and SDLT acquisition relief requires a trading undertaking. Reconstruction reliefs for capital gains and SDLT can still apply to property businesses, but HMRC has said there may be a problem for the company-level capital gains relief where a subsidiary only holds investments or property, so the structure needs care.

The lender will usually need to consent, and the loan may move with the property or be refinanced. For SDLT, a liability taken over by the buying company can count as consideration. For capital gains, the company transferring its business can usually only receive the assumption of liabilities in return. Bank discussions should start early in the timetable.

Yes, but the land tax is different. Scotland has Land and Buildings Transaction Tax and Wales has Land Transaction Tax, each with its own group, reconstruction and acquisition reliefs. They are broadly similar to SDLT but not identical, and are administered by Revenue Scotland and the Welsh Revenue Authority respectively.

Yes, normally. A land transaction return is usually needed even where relief is claimed, and in England and Northern Ireland it is due within 14 days of the effective date. If a relief is later withdrawn, a further return is required within 30 days of the triggering event.

It can. Shares in a company whose business is mainly holding investments, including let property, don't qualify for Business Relief. Moving property out of a trading company into its own company can therefore take its value outside Business Relief. That may still be the right step, but it should be weighed alongside the other benefits.