How We Structured A Tax-efficient Demerger Ahead Of A Proposed Multi-million-pound Business Sale

The founders received an offer to sell their business but wanted to keep the valuable investment assets held within the wider group. This created a common challenge for owner-managed businesses. How to separate the trading business from the retained assets without creating immediate tax charges or affecting the proposed sale.

The group included a successful trading business, investment properties, and other investment assets. The buyer only wanted to purchase the trading business, while the founders wanted to keep the remaining assets in a separate company.

The proposed sale included immediate, deferred, and performance-related payments. This meant the final value of the deal would depend on the final sale agreement and future business performance.

The restructuring needed to:

• Separate the retained assets from the trading business before the sale.
• Keep the retained assets under corporate ownership.
• Avoid immediate dry tax charges, as far as the available tax reliefs allowed.
• Create a clean trading structure that would meet the buyer’s legal and tax due diligence requirements.
• Make sure the legal documents, share structure, and accounting treatment matched the intended tax position.

We advised on a capital reduction demerger to separate the trading business from the retained investment assets while keeping the planned ownership structure in place.

efore starting the restructuring, we prepared advance clearance applications to HMRC. This was to confirm that the relevant share exchange, reconstruction, and transactions in securities rules would not stop the planned tax reliefs from applying.

The restructuring was based on the commercial needs of the proposed sale. The buyer wanted a clean trading business and did not want to acquire the investment properties or other retained assets.

We worked closely with the legal and accounting teams to make sure every part of the transaction supported the tax planning. Our review covered:

• Corporation Tax
• Capital Gains Tax
• Distribution rules
• Stamp Duty
• Company law
• Buyer’s legal and tax due diligence

After the proposed demerger:

• The founders would continue to own, in equal shares, a separate company holding the investment properties, cash, and other retained investment assets.
• A separate holding company would own the trading business, leaving it ready for the proposed sale.

The retained assets would stay within a company instead of being transferred into the founders’ personal ownership.

The transaction was planned to make use of the available reconstruction, group, distribution, and Stamp Duty reliefs, provided all legal conditions were met and the final implementation matched the information shared with HMRC.

The proposed sale also included deferred and performance-related payments, so these would need separate tax advice as the final sale documents were prepared.

• A clear separation between the trading business and the retained investment assets.
• A cleaner business structure for the buyer.
• Lower risk of immediate dry tax charges during the reorganisation.
• The retained assets staying within a separate corporate group.
• A well-documented structure that could be reviewed by HMRC, the buyer, and the legal advisers.

The shareholders’ eligibility for Business Asset Disposal Relief would be reviewed separately based on the tax rules in place at the date of the sale.

A pre-sale demerger works best when the commercial goals, tax planning, legal documents, and accounting treatment all work together.

Planning early, obtaining advance HMRC clearance, and coordinating the legal, tax, and accounting work can help reduce tax risk and make sure the trading business is ready for a smooth sale.