Each shareholder takes their own business, without an unexpected tax bill.

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.