Reorganising a company is a complex process, but getting it right can pay huge dividends in the long run.
Businesses may want to restructure to simplify their overall operations, particularly after a period of acquisitions, and there will ultimately be a commercial goal in mind. Shareholders might be looking to go in another direction, or there might be a need to protect business activities.
Our teams work with you to ensure that your reorganisation is as tax efficient as possible, and to ensure a smooth and simple process for you, your business and any shareholders.
Preventing a charge on income tax on distribution is one of the most important considerations, and so we may advise that a statutory demerger is the best way to achieve your aims as this charge may be exempt where certain conditions are met. We work with you to understand the best way to treat your demerger to ensure there are no surprises along the way.
Section 110 of the Insolvency Act 1986 is often used as a way to enable a business to achieve their goals in the reorganisation process, as an alternative to a statutory demerger. Section 110 might be used where a pyramid group with multiple activities is separated based on each trade, assets are to be separated into new companies, commercial property is split from a trading company and transferred to a new company or a company with two distinct trades has an interested buyer in just one of their trades.
There are many tax issues in relation to company reorganisations, including Capital Gains Tax, income tax on transfers, Stamp Duty Tax and potentially, Inheritance Tax.
Carrying out a capital reduction demerger involves parts of the group being split out under a new company by some or all of the original shareholders. There are a number of benefits to carrying out this form of demerger:
- The company will not need to be liquidated
- Stamp Duty is reduced as the retained assets don’t change hands
- There are no legislative restrictions on selling parts of the demerged group
- There is no requirement for the entities to be trading companies
- It’s tax efficient.
Tax reliefs are available in certain circumstances, so contact our team to discuss your position.