Running a group
Getting the premises away from trading risk: a PropCo in the group, or a demerger
Options for separating a trading company's property: a PropCo inside the group, or a demerger to put it outside. Capital gains, SDLT, reliefs and timing.
By Omar Aswat CTA ·
Many owner-managed businesses own their premises inside the trading company. It's usually where the building ended up, rather than a decision anyone made. But it means a valuable, relatively safe asset sits next to the risks of the trade: customer claims, bad debts, a failed contract, an insolvency.
There are two broad ways to separate them:
- Move the property into a property company (PropCo) inside a group, under a holding company (HoldCo).
- Take the property out of the trading group altogether, so it ends up in a company owned alongside the group, usually through a demerger.
Each has different tax costs and different results. Here's how they compare.
Why separate the property at all?
- Protection. A building in PropCo isn't an asset of the trading company (TradeCo), so it's not available to TradeCo's creditors (subject to any guarantees or security).
- A future sale. Buyers often want the trade but not the building. Separating early makes a later sale of TradeCo cleaner.
- Succession. Some family members may want the property income without the business, or the other way round.
- Finance. Property and trade can be financed separately.
Option 1: a PropCo inside the group
If you don't already have a holding company, the first step is to insert one with a share-for-share exchange. See inserting a holding company. Then HoldCo forms PropCo, and TradeCo transfers the building to PropCo. PropCo grants TradeCo a lease.
How the transfer is taxed
| Tax | Treatment within a 75% group | Watch out for |
|---|---|---|
| Corporation tax on chargeable gains | No gain, no loss (TCGA s171) | Degrouping charge if PropCo leaves the group within 6 years holding the building (s179) |
| SDLT | Group relief between 75% group companies (FA 2003 Sch 7) | Clawback if PropCo leaves the group within 3 years; not available if there are arrangements for PropCo to leave |
| VAT | Depends on the property's VAT history | Check whether the building has been opted to tax |
| Lender | Consent needed if mortgaged | Cross-guarantees can undo the protection |
Because the group is a 75% capital gains group, the building moves at its original tax cost. No gain arises now; the gain is deferred until the building leaves the group. See group relief and capital gains groups.
How it affects the reliefs
- BADR and SSE. For Business Asset Disposal Relief, a trading group's activities are treated as one business, and activities between group members are disregarded. PropCo letting premises to TradeCo is part of the group's trade, not an investment.
- Business Relief. Normally, a group company holding investments is ignored when valuing HoldCo's shares for inheritance tax. But IHTA s111 makes an exception for a company whose business is wholly or mainly holding land or buildings occupied by the group's qualifying trading companies. Use by another group member also counts as use for the business when looking at excepted assets.
So inside the group, the building is protected from TradeCo's risks while the reliefs are, broadly, preserved.
The limits of Option 1
The property is still in the same group as the trade. If HoldCo later sells TradeCo, PropCo stays behind with HoldCo, now letting to an outside tenant. From then on HoldCo's group may look more like an investment group than a trading one. And if a buyer wants HoldCo itself, the building comes too.
Option 2: taking the property outside the group
Here the aim is for the shareholders to own two separate companies or groups side by side: one trading, one holding the property. That needs a demerger.
The main routes:
| Route | In outline | Key point for property |
|---|---|---|
| Statutory demerger (CTA 2010 Part 23 Ch 5) | Shares in a subsidiary distributed to shareholders | Each subsidiary distributed must be trading, so usually not suitable for a property company |
| Capital reduction demerger | A new company acquires the group; capital is reduced and the property side transferred to a company owned by the shareholders | Company law steps (solvency statement, filing) plus tax reliefs and clearances |
| Liquidation demerger (IA 1986 s110) | Company placed in members' voluntary liquidation; liquidator transfers the businesses to new companies for shares | Formal insolvency process; declaration of solvency |
On the shareholders' side, reconstruction relief (TCGA s136) can mean no disposal. On the company side, s139 can give no gain, no loss treatment for the business transferred. Both are now subject to the Finance Act 2026 main purpose test for arrangements from 26 November 2025, and clearance is normally sought. HMRC's manual also notes there can be a problem for s139 where a subsidiary only holds investments or property, so the structure needs careful design.
SDLT is often the biggest cost. Group relief isn't available where the property company is to leave the group, and the other SDLT reliefs depend on the route and the facts. Model it early.
For a full guide to the routes, see demerging a group and our specialist site Demerger Tax (opens in a new tab).
Comparing the two options
| PropCo inside the group | Property outside the group (demerger) | |
|---|---|---|
| Protection from TradeCo's creditors | Yes, subject to guarantees | Yes |
| Tax on the transfer | Usually none (no gain, no loss; SDLT group relief) | Reliefs available but more conditions; SDLT can bite |
| Clearances | Share exchange clearance for the holdco | Several clearances usually needed |
| Complexity | Moderate | Higher |
| Sale of the trade later | Building stays with HoldCo; may tip the group to investment | Clean: trade sold without the property |
| BADR on the trading business | Preserved while the property is used by the group | Trading group unaffected by the property |
| BADR/Business Relief on the property | Within the group's reliefs while used by the trade | Property company is an investment company: generally no BADR or Business Relief |
A common pattern is to start with Option 1, which is cheaper and simpler, and consider a demerger later if a sale or a family split makes it worthwhile. The six-year degrouping and three-year SDLT windows then matter for timing.
Questions to ask first
- Is the building mortgaged, and what will the lender need?
- Is a sale of the business likely, and would a buyer want the building?
- Does the property have a VAT history?
- Do all shareholders want to own the property in the same proportions as the trade?
- Is the building used wholly for the trade, or partly let to others?
Our sister site Property Tax Advisory (opens in a new tab) covers property companies more widely. To model a PropCo in your own structure, try the Structure Lab, see a property company in a group, or book a call. We respond the same working day.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
