UK tax considerations in pre-sale company reorganisations
Pre-sale company reorganisations involve restructuring a business or group of companies prior to a sale to make it more attractive to potential buyers, optimise value, or separate non-core assets. This could include creating a new holding company, transferring assets intra-group, or demerging divisions. In the UK, such reorganisations must navigate complex tax rules to achieve tax efficiency while avoiding unexpected liabilities.
The primary goal is often to facilitate a share sale over an asset sale, as the former can benefit from exemptions like the Substantial Shareholdings Exemption (SSE), potentially making gains tax-free. However, poor planning can trigger “dry” tax charges, liabilities without corresponding cash inflows. This article explores key UK tax implications, reliefs, and pitfalls, drawing on current legislation as of September 2025. Note that this is for informational purposes only and professional tax advice is essential.
Why undertake a pre-sale reorganisation?
Companies often accumulate complex structures over time, with multiple businesses operating within one entity or redundant subsidiaries lingering post-acquisitions. A pre-sale reorganisation simplifies this, such as by “packaging” a trade into a standalone subsidiary for sale. This not only appeals to buyers by isolating desired assets and liabilities but also mitigates tax risks. For instance, it can prevent de-grouping charges or ensure eligibility for tax reliefs. Common forms include share-for-share exchanges, hive-downs (transferring assets to a new subsidiary), demergers, and capital reductions.
Key tax implications
Corporation tax and capital gains
Intra-group asset transfers within a UK tax group are typically tax-neutral, treated on a no-gain/no-loss basis, as the group is viewed as a single entity for capital gains purposes. However, if the transferee company leaves the group within six years (e.g., via sale), a de-grouping charge may apply, taxing the earlier transfer at market value. This can be mitigated if the sale qualifies for SSE, which exempts gains on subsidiary share disposals if the seller holds at least 10% for 12 months and meets trading conditions.
In share reorganisations, such as bonus or rights issues, there’s no immediate corporation tax charge, as they don’t constitute a disposal. For demergers, statutory routes can achieve tax neutrality, but non-statutory ones require careful planning to avoid charges.
Shareholder Capital Gains Tax (CGT)
For individual shareholders, reorganisations like share-for-share exchanges are tax-neutral, no disposal occurs, and the new shares inherit the base cost and acquisition date of the old ones. This applies to takeovers involving new shares or securities, provided it’s uniform for all shareholders in the class. If cash is involved (e.g., in a mixed offer), CGT may arise on the cash portion. Qualifying Corporate Bonds can defer gains until redemption.
Company purchases of own shares (CPOS) can be treated as capital distributions (subject to CGT at lower rates) if conditions are met, such as for UK residents, but may default to income tax treatment otherwise.
Stamp Duty and Stamp Duty Land Tax (SDLT)
Stamp duty (0.5% on share transfers) and SDLT (on land transfers) can be triggered in reorganisations. However, group relief often applies for intra-group transfers, exempting them if anti-avoidance rules aren’t breached (e.g., no arrangements for the transferee to leave the group). Pre-sale planning must avoid “dry” stamp taxes; documentation should be drafted to secure reliefs.
VAT
Asset transfers may incur VAT, but if treated as a transfer of a going concern (TOGC), no VAT applies, provided the buyer continues the business. Careful assessment of asset taxability and group arrangements is needed to prevent charges.
Reliefs and clearances
Key reliefs include:
- SSE: Exempts corporate sellers from gains on qualifying share sales.
- Group Relief for Transfers: No-gain/no-loss for assets; stamp duty exemption.
- Reconstruction Relief: Tax-neutral treatment for share capital changes.
HMRC clearances are advisable, though not mandatory, especially for share-for-share exchanges or demergers to confirm commercial purpose and non-avoidance. Under anti-avoidance rules, transactions must have bona fide commercial reasons, not primarily tax-driven.
Pitfalls and recent developments
Common pitfalls include triggering de-grouping charges, failing anti-avoidance tests, or phoenixing (liquidating and restarting similar businesses, risking income tax treatment).
How Gravita can assist
At Gravita, we specialise in helping businesses navigate the complexities of pre-sale reorganisations which can enhance sale proceeds and tax efficiency, which require meticulous planning to leverage reliefs and avoid pitfalls.
What next?
Please contact Fiona Cross, Corporate and International Tax Partner, to discuss how we can help explore pre-sale company reorganisations for your business
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