Separating Property from a £35m Construction Group Ahead of a Sale

A family-owned property and construction group, valued at £35m, wanted to sell its trading business and keep its buildings. This is how our team made that possible without a tax charge on the reorganisation itself.

The client

The client was a group of UK shareholders who owned a property and construction business worth around £35m. They were getting the business ready for a sale.

The challenge

The group owned valuable property as well as its trade. A buyer was likely to want the trading business only, and the family wanted to hold on to the property.

Pulling the two apart is not simple. Done the wrong way, it can produce capital gains tax, corporation tax and stamp duty land tax (SDLT) on the move itself, before any sale has taken place.

What we did

• Placed a new holding company above the group. Shareholders swapped their existing shares for shares in the new company through a share-for-share exchange.
• Used a capital reduction demerger to separate the property from the trading business.
• Applied to HMRC for clearance first. We sought clearance under section 138 TCGA 1992 and section 701 ITA 2007 before any step was carried out.
• Secured SDLT relief on the transfers of the property.

Nothing was implemented until HMRC had given its clearances. That meant any questions could be answered, or the plan adjusted, while it was still only a plan.

The outcome

• The property was separated from the trade without a tax charge on the reorganisation.
• SDLT relief was secured on the property transfers.
• Every HMRC clearance was granted before the steps were taken.
• The family kept the property, and the trading company was left clean and ready to sell.

If you own a company that holds property alongside a trade and a sale may be on the horizon, our team can talk through the options. You can book a call with us.

For more on how demergers work in practice, see our specialist demerger practice, Demerger Tax.