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Split up of a property investment company

I have a client property investment limited company which holds mainly commercial but some residential properties which is owned by 3 shareholders. The shareholders want to split the company up equally into 3 separate limited companies. Would the way to do this be by a s110 demerger and, if so, are there any tax implications including stamp duty.

Does anyone know of any other easier way to split the company. Company is worth about £6m.

Thanks

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Demerger

I think a s110 demerger is the way forward. This will avoid all taxes other than SDLT. It used to be that there was a relief limiting the SDLT to 1/2% but I seem to recall this was abolished for non-trading companies.

Only other option to avoid the SDLT (barring some type of scheme) is to reorganise the shares into three classes, one for each shareholder, each linked to its own pot of property. One could go a stage further and create three subsidiaries - one linked to each class of share. This allows income and gains to be streamed separately but falls short of a demerger and thereby avoids all tax costs, including SDLT. Whether this is acceptable, of course, depends on the requirements and future plans of the shareholders. Using the subsidiary route, if the shareholders are prepared to wait that long, in 6 years I think you could implement the demerger with only 1/2% stamp duty!

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Demerger

Thank you for your comments.

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Stamp Duty

After the 6 years would the stamp duty not be exempt when implementing the s110 demerger as transfers that a liquidator makes as settlement to shareholders when a business is wound up are exempt. 

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Stamp duty

My thinking was that shares would be distributed rather than properties and so only 1/2% would apply. The exemption on liquidation would not apply to a s110 demerger because the shares are being distributed to new companies in return for those companies issuing new shares to the shareholders. Thus there is consideration on which stamp duty is payable.

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Once again, thanks for you response.

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