Capital Reduction Demerger

Our Clients

Our clients, (mother and father) had established a successful student let business comprising of in excess of 40 properties. They planned to pass the company to their two children as they were reaching retirement age. The children had recently become shareholder-directors of the company. However, the children could not agree on whether they wished to continue letting those properties to students and approached us for advice. 

The current ownership structure was complicated and there were several trusts involved, as well as lot of different classes of shares. The properties stood at a significant gain, and the potential SDLT costs of moving properties around could have been significant.

We considered how it might be possible to achieve the client’s objectives by splitting the properties into two separate companies, each under the sole ownership of one of the children.   It was determined that a capital reduction demerger was the best option for this and would allow the properties to be separated with minimal tax cost.  

The Process

When contemplating such a process, there are a number of factors to be considered, not least:

• Obtaining tax clearance from HMRC
• Valuing the assets to be retained and those to be demerged
• Consideration of the nature of the assets to be demerged – this can have an impact on how the assets are moved between the various companies and the timescales involved
• Whether the business will be affected by the demerger – the process involves a change of control of the business, which may have undesirable commercial or tax consequences if not properly planned for
• Any claims for stamp duty relief

ETC Tax work with clients, and their legal advisers to ensure that all aspects of a capital reduction demerger are handled appropriately. If you have clients in a similar scenario, wishing to separate their interests in a trading or investment company, please do get in touch.