Restructuring an Owner-Managed Group: Share Exchanges, Reconstructions and Clearances

Quick answer: A corporate restructuring changes who owns what in a company or group, for example by adding a parent company, moving a business or splitting one company in two. Most can be done without an immediate tax charge if the conditions are met. Since 26 November 2025 a main purpose test applies to share exchanges and reconstructions, so the commercial reason and HMRC clearance matter more than they did.

What counts as a restructure

Any reorganisation of who owns the shares or the businesses in a company or group. Common examples are:

• putting a new parent company above an existing one;
• moving a trade or property into another company;
• merging two companies;
• splitting one company in two;
• buying back shares from a departing shareholder.

Each uses different tax rules and different reliefs. That is why we start with what you want to achieve, and then choose the route.

Why owners restructure

• Protect assets. Move property or investments away from trading risk.
• Move cash up tax-free. Allow profits to pass to a parent company without personal tax.
• Prepare for a sale. Make the company easier to sell, or ring-fence what a buyer does not want.
• Separate businesses. Split a company between shareholders or into two groups.
• Tidy a group. Merge dormant or duplicate companies, or put the right company in the right place.
• Plan for the next generation. Create share classes or companies so family members can take part.

If none of these applies, you may not need to restructure at all. Sometimes a simpler change, such as adjusting share classes or how dividends are paid, does the job.

A tax restructure is not a rescue

"Restructuring" also describes something quite different: reworking a business in financial difficulty. That means renegotiating debt, securing new finance, cutting costs or closing loss-making parts of the business. Where a company is struggling to pay its debts, the rules in the Insolvency Act 1986 come into play, and the Corporate Insolvency and Governance Act 2020 added options such as the moratorium and restructuring plans. That work is for an insolvency practitioner, not a tax adviser.

This article is about the other kind: changing who owns what, in a healthy business, for commercial reasons. The timing matters. Moving property or cash out of a company that is already facing a claim, or is close to insolvency, can be challenged and unwound. A restructure to protect assets has to be done while the business is in good health.

The main routes

Share exchanges

Shareholders swap their shares in one company for shares in another, usually a new holding company. Section 135 of the Taxation of Chargeable Gains Act 1992 treats the new shares as the old ones. There is no disposal, and the base cost and acquisition date carry over. This is the usual way to add a holding company. Our article on share-for-share exchanges covers the risks.

Reconstructions

When a business moves to another company for shares passed to the shareholders, section 136 protects the shareholders and section 139 can treat the company's transfer as no gain, no loss. This underlies a capital reduction demerger.

The main purpose test

Finance Act 2026 changed section 137 of the Taxation of Chargeable Gains Act 1992. Relief can now be denied where a main purpose of the arrangements is to reduce or avoid capital gains tax or corporation tax. It applies to share issues on or after 26 November 2025, with a similar rule for business transfers. The old protection for holders of 5% or less has gone, so every shareholder in a share exchange is within the test.

HMRC guidance says a restructure with genuine commercial aims, and which only defers tax, is not caught. Read more in our article on the new main purpose test.

HMRC clearance

Clearance is not compulsory. It lets HMRC confirm in advance that a specific relief will not be denied on anti-avoidance grounds. The usual applications are section 138 of the Taxation of Chargeable Gains Act 1992 for share exchanges and reconstructions, and section 701 of the Income Tax Act 2007 for the transactions in securities rules. They often go in one application.

HMRC must reply within 30 days of a complete application. Whether to apply depends on the tax at stake and how clear-cut the facts are. Two timing points catch people out:

• A section 138 clearance has to be obtained before the shares are issued. Issuing early defeats the point of applying, so the share exchange is usually made conditional on clearance.
• A clearance obtained before 26 November 2025 can be relied on only in narrow circumstances. Otherwise a fresh application under the new rules is normally needed.

Stamp duty, SDLT and Business Asset Disposal Relief

Stamp duty. Share transfers cost 0.5%, rounded up to the nearest £5. Reliefs exist, but they have conditions, including that shareholdings mirror each other and there is a genuine commercial reason. Cash to one shareholder, different share classes or a buyer already lined up can all cause the relief to fail.

SDLT. Group relief can apply to transfers between companies in the same 75% group. It can be withdrawn if the buyer leaves the group within three years, and it is unavailable where there are arrangements for that to happen. That matters if a demerger or sale is on the horizon.

BADR. After a share exchange you must still meet the 5% and officer-or-employee tests for the new company, and it must be a trading company or head a trading group. Where there is a risk, an election under section 169Q can treat the exchange as a disposal so that relief is claimed at 18% on the gain, up to £1m of lifetime gains.

Timescales

Simple restructures can be done in a few weeks. Those needing clearance usually take two to three months from the first call, including HMRC's 30-day window. Complex cases involving property, valuations or several shareholders take longer. Banks, landlords and regulators can set the pace as much as HMRC. Firms regulated by the FCA, for example, may need to notify a change of controller.

How a restructure runs, step by step

1. Assessment. We look at the current structure, the shareholders, the assets and the lending, and at what you want to achieve. A restructure without a clear objective wastes time and money, and it makes the commercial case to HMRC harder to show.
2. The plan. We choose the route and model the tax across every tax: capital gains tax, corporation tax, income tax, stamp duty, SDLT and VAT, plus the effect on reliefs such as BADR and the substantial shareholding exemption. A valuation is prepared where it is needed.
3. Clearance. The application sets out the commercial reasons and the steps in full. Legal drafting can start in parallel.
4. Implementation. Once clearance is received, the documents are signed in the right order, stamp duty relief is claimed, and Companies House filings are made.
5. Afterwards. Your accountant needs to know what changed: new companies, intercompany balances, base costs and the dates of any intra-group transfers. A short review once a year keeps the group working as intended.

Tell the right people early. Shareholders, lenders and landlords may all need to consent. Where a trade moves from one company to another, the employees normally transfer with it under the TUPE rules, and contracts and licences may need to be assigned. None of this is tax, but any of it can delay the timetable.

Common mistakes

• No clear objective. Start with what you want to achieve, then choose the route.
• Telling lenders, co-owners or staff too late. Consents and employment rules can hold up the whole plan.
• Moving property too early. SDLT group relief can be lost, with a three-year clawback.
• Ignoring stamp duty. Check it at every step.
• Skipping clearance where the stakes are high.
• Forgetting holding periods. Selling shortly after a restructure can undo the benefit if a relief period was not met. The substantial shareholding exemption can need 12 months, and BADR two years.
• Losing trading status by putting investments in the wrong company.

Example: Two brothers each own half of a trading company that also owns a building worth £1m. They want to protect the building and prepare to sell the trade in a few years. A holding company is placed above the trading company through a share exchange, and the building is separated into its own company. A clearance application confirms the reliefs. The ownership is the same, in a safer and more saleable structure, with no immediate tax charge if the conditions are met. The figures are hypothetical and the real steps depend on the facts.

If you are considering this, see our Corporate Restructuring service page for the wider toolkit, and our article on accounting entries in corporate restructures for what your finance team will need.

Talk to us about Corporate Restructuring

• Most restructures can be tax-neutral if the conditions are met
• A main purpose test now applies to share exchanges and reconstructions
• HMRC clearance gives certainty before you commit

See how we help or book a free 20-minute call.

FAQs

Can a restructure be done without paying tax?

Often, yes, but it depends on the conditions being met. A share-for-share exchange can mean shareholders make no disposal, and reconstruction reliefs can treat a business transfer as no gain, no loss. Stamp duty and SDLT have their own reliefs. None is automatic, and each has anti-avoidance rules, so every step is checked before anything is signed.

Do I need HMRC clearance?

It is not compulsory, but it is often worthwhile where the tax at stake is significant. Clearance lets HMRC confirm in advance that a relief will not be denied on anti-avoidance grounds. It covers only the facts you disclose, and it does not deal with stamp duty or SDLT.

What if one shareholder wants cash instead of new shares?

Cash changes the analysis. The shareholder receiving cash makes a part disposal, and stamp duty share acquisition relief can fail for the whole transaction because the consideration must be shares only. Common alternatives are a buyback by the company before the exchange, or the other shareholders buying the departing holder out. The order of steps matters.

Can a restructure be reversed?

Partly. Unwinding often means another set of transactions with their own tax and stamp duty, and unwinding soon after can raise anti-avoidance questions. That is why we test the plan and look at the exit routes before starting. A structure designed for flexibility is much easier to adjust later.

When is it better not to restructure?

When the benefit is small compared with the cost, or when the structure would cause trouble elsewhere, such as restricting a lender's security or complicating a regulated business. We will say so plainly if doing nothing is the best advice.

Next step

If you are thinking about changing how your company is owned, talk to us before you sign anything. We offer a free 20-minute call to work out which route fits your plans. Book a call.