Whether bringing separate companies under a single holding company, moving companies, assets and liabilities within a group or organising a demerger (separating two or more companies into different groups, often with different shareholders, usually two or more groups of shareholders from the original holding company who no longer see eye to eye), there are tax, commercial, accounting, insolvency and corporate law issues potentially affecting the process and that is before dealing with the practical problems, such as who owns the database, which employees belong with which group and who keeps the VAT number.

We do not advise on the tax implications of such reorganisations and often implement a tax plan created by the tax advisors, but that plan is only the beginning of the process.

There are often multiple mechanisms for carrying out these types of transaction. Usually, you will be seeking the most tax efficient method of getting from here to where you wish to be. That may involve shareholders transferring shares in one company for shares in a new holding company, it might involve the payment of a “dividend in specie” (a transfer of an asset by company A to its shareholders by way of a dividend of the thing itself. That thing might be shares in another company).

This can have tax advantageous consequences, as shares which have a very high market value might be able to be transferred at a very low book value out of the hands of company A. This type of deal is called a statutory demerger but can be used only to separate two or more trading businesses.

Sometimes one or more of the target companies to be separated holds assets (such as rental properties) as investments. As it is a condition of a statutory demerger that it relates to two or more trading businesses, a statutory demerger may not be possible. For these types of problem, we can use what is known as the section 110 demerger. Section 110 is a provision of the Insolvency Act 1986 which can be used to divide non-trading companies in a relatively tax efficient way.

Getting the process right is crucial in these transactions. Expressing a dividend in specie in a way which treats the dividend as one of cash satisfied by the transfer of assets can destroy value and create painful tax bills. Transferring an asset within a group before a demerger can, likewise, trigger corporation tax on a capital gain when the demerger takes place.