Depending on what you are looking to achieve we can suggest the most appropriate solution for your business to move forward and obtain the necessary tax clearances from HMRC to give you certainty in advance. The theme throughout is that a commercial driver is generally needed to satisfy HMRC and avoid unfavourable tax charges.


What are the common situations?

  • Partial exits or MBO’s – e.g., one shareholder wants to fully exit from the company and a company buyback may not be possible to achieve capital gains tax treatment.
  • Shareholders wish to concentrate on their preferred part of the business (i.e., split the business).
  • Asset protection – e.g., “ring fence” certain assets from the trade but maintain ultimate share ownership.
  • Inheritance Tax exposure in the future (Business Property Relief).

What are the main routes?

  • Placing holding company above trading entity – “share swap”.
  • Tax exempt (Statutory) “demergers”, non-statutory demergers – no liquidation needed.
  • · Capital Reduction Demerger or Section 110 Liquidation (where Tax exempt demerger not possible).

What are the main tax issues?

  • An “income distribution” arising, which HMRC would treat as if it were a dividend.
  • For the “demergers” in particular, potential corporate taxes on assets distributed.
  • Stamp Duty and Stamp Duty Land Tax – exemptions or reliefs might be possible.

Some potential problem areas

  • Staged buyouts – e.g., where a shareholder receives cash but still retains more than 25% of the shares.
  • Some reductions of capital – e.g., where there are also significant distributable profits.
  • Voluntary liquidations and the “TAAR” – Distributions in a winding up can now be income.

(This is based on legislation currently in force and is not to be construed as formal tax advice).

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"Depending on what you are looking to achieve we can suggest the most appropriate solution for your business."

Jon Miles