Many manufacturing businesses have spent decades building value in two distinct areas: their trading operations and their property portfolio. Yet, despite the fundamentally different nature of these assets, it remains common for both to be held within the same legal entity.

For owner-managed manufacturers, this structure often develops naturally over time. The company acquires a factory, expands into neighbouring units, purchases warehousing facilities and, before long, the operating business and property assets become intertwined.

The question is whether that structure remains appropriate as the business grows.

1. Property and trade are fundamentally different assets

A manufacturing trade is inherently exposed to commercial risk. Supply chain disruption, product liability claims, customer insolvencies, employment disputes and economic downturns are all realities of operating in today’s market.

Property, on the other hand, is typically a long-term wealth asset. When valuable factory premises, distribution centres or industrial units are held within the trading company, they sit directly alongside those trading risks.

In a worst-case scenario, creditors may have access to assets that shareholders intended to preserve for future generations. As a result, many manufacturing business owners are re-evaluating whether their property should remain exposed to the risks associated with day-to-day trading activities.

This is particularly relevant for manufacturers that have occupied the same site for many years. In many cases, the value of the factory or industrial estate has increased significantly and now represents a substantial proportion of shareholders’ overall wealth.

The question therefore becomes whether that wealth should continue to sit alongside the operational risks of the trading business.

2. Why manufacturers are considering demergers

One increasingly popular solution is a demerger.

A demerger can separate the property-owning business from the trading business while preserving ownership by the same shareholders. Following a successful demerger, the manufacturing trade can continue to operate from the same premises under a lease arrangement, while the property is held within a separate corporate structure.

This can deliver several strategic advantages:

• Risk management – valuable property assets can be ring-fenced from trading risks.
• Succession planning – future generations may wish to retain property ownership while pursuing different commercial objectives.
• Investment flexibility – shareholders can bring external investment into the trading business without impacting property ownership.
• Exit readiness – buyers may prefer to acquire a trading business without the associated property assets.
• Retirement planning – shareholders may retain a rental income stream from the property even after a disposal of the trade.

For manufacturing businesses with substantial freehold property holdings, these factors can significantly influence long-term value preservation.

3. The current demerger landscape

While demergers can be highly effective, they are not straightforward. The process typically requires careful planning and detailed technical analysis.

In many cases, HMRC clearance is sought to provide certainty that the relevant tax provisions apply and that the statutory conditions have been satisfied. Among other requirements, the companies involved generally need to be carrying on trading activities or form part of a qualifying trading group at the time of the transaction.

When structured correctly, a demerger can achieve a commercial separation of assets without triggering unintended tax consequences. However, every case should be assessed against its own facts and objectives.

4. Changes on the horizon?

This area has become particularly topical following the Government’s recent consultation on modernising the taxation of distributions and repayments of capital, which includes proposals affecting demergers and capital reduction structures.

The consultation, launched by HMRC on 23 June 2026, is considering whether aspects of the existing framework remain appropriate. The statutory demerger route fell out of favour due to being restrictive and often unsuitable for businesses with a combination of trading and investment property activities.

It is possible that any changes following the consultation may be less favourable than the tried and tested capital reduction demerger route.

One of the key areas of discussion is the future of capital reduction demergers, a well-established method for separating businesses and assets. The key question is whether capital reduction demergers should continue in their current form or whether the statutory route should take greater prominence.

5. What does this mean for manufacturing businesses?

For manufacturing business owners, the consultation serves as a timely reminder to review existing structures.

If your business owns valuable factories, warehouses or industrial property within the trading company, now may be the right time to consider whether the current arrangement continues to align with your long-term objectives.

The conversation should not start with tax. It should start with strategy.

If you were designing your corporate structure today, would you choose to place your most valuable property assets inside the same entity that carries the operational and commercial risks of the manufacturing business?

For an increasing number of manufacturing business owners, the answer is no.

With growing focus on risk management, succession planning, transaction readiness and potential legislative change, now may be an opportune time to review whether separating property from trade could help protect and preserve long-term shareholder value.

If you would like to discuss your current structure and whether separating property from trade could support your long-term plans, we are here to help. Get in touch with Jess Fielden at JessicaFielden@schofieldsweeney.co.uk.