Forbes Dawson Tax Bite: Demerging a property investment company

We have been involved in quite a lot of work in tax efficiently splitting interests in investment companies.

A typical scenario is an investment company where shareholders fall out and want to go their separate ways. Although there are various statutory tax reliefs for break-up situations these tend to only apply to trading companies. There are however equally effective ways of structuring things using capital reductions:


  1.  Propco is owned 50% by shareholders A and B who have fallen out.
  2. Deal is that A gets £400,000 property and £200,000 cash to leave.
  3. He wants to use the cash to expand the property business and therefore does not want to pay tax on extraction.
  4. Insert newco and pay property and cash up to it.
  5. Reduce newco’s share capital so that Propco is distributed to another newco in exchange for B being issued with shares in the other Newco.
  6. There are various reliefs which avoid tax on the above transactions.

The clever bit is that this kind of structuring leads to a tax free uplift in tax base cost for the £400,000 property. Therefore if this had a £100,000 base cost (say) the £300,000 gain would simply disappear. This is probably an unintended effect which may be changed in the future but we are very happy with the current technical analysis.

Tax Bites are a fortnightly article featuring simple updates about key tax opportunities for other professional colleagues and clients.  For further details, contact the author or your usual Forbes Dawson contact via our ‘Contact Us’ page.




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