What a Delaware flip is
A Delaware flip puts a new US company, incorporated in the state of Delaware, on top of an existing UK startup. The UK company's shareholders exchange their shares for shares in the Delaware company, in the same proportions, and the UK company becomes its wholly owned subsidiary. The UK company usually carries on employing the UK team, holding its contracts and doing its research and development.
The request normally comes from US venture investors. Many of them invest through standard documents written for Delaware corporations and prefer the company they invest in to be one, so a UK startup planning a US round is often asked to flip before the money arrives. The decision has UK tax consequences for every shareholder, and some of them cannot be reversed, so work them out before agreeing to it.
The sections below cover how the exchange works, capital gains tax and HMRC clearance for UK founders and investors, what happens to SEIS and EIS relief and to EMI options, the main US filings, and how the UK subsidiary keeps claiming research and development relief.
What this guide covers
- Why US investors ask for a Delaware company
- How the share-for-share exchange works
- UK tax for founders and investors, SEIS, EIS and EMI
- US filings and keeping UK R&D relief
How a flip works
The steps follow the same pattern as putting a UK holding company in place, described in our guide to putting a holding company on top of your startup.
- Incorporate the Delaware company with a share capital that mirrors the UK company's, so each shareholder can receive the same class and percentage they hold now.
- Apply for HMRC clearance for the UK shareholders before the exchange.
- Exchange the shares. Every UK shareholder transfers their UK shares to the Delaware company and receives its shares in return. The UK company becomes a wholly owned subsidiary.
- Replace any share options granted by the UK company with options over the Delaware company's shares.
- Put intercompany agreements in place, such as a services agreement under which the UK company does work for the parent, and decide where the intellectual property is held.
Moving the intellectual property itself from the UK company to the Delaware company is a separate step with its own UK tax cost. The tax-neutral treatment for intellectual property moving within a group, in section 775 of the Corporation Tax Act 2009, applies only where the asset stays within UK corporation tax after the transfer. A flipped group can leave the intellectual property in the UK company and license it to the parent.
UK tax for founders and investors
Each UK shareholder gives up shares in the UK company. Under section 135 of the Taxation of Chargeable Gains Act 1992, that is not treated as a disposal where the acquiring company ends up with more than a quarter of the ordinary share capital, acquires the shares under a general offer that gives it control, or ends up with the greater part of the voting power, as HMRC's CG52523 sets out. The rules do not require the acquiring company to be a UK company, and a Delaware parent acquiring all the shares meets the conditions. The new US shares take over the cost and acquisition date of the old UK shares.
The relief is subject to the anti-avoidance rule in section 137, which Finance Act 2026 rewrote for shares issued on or after 26 November 2025. It applies where a main purpose of the arrangements is to reduce or avoid capital gains tax or corporation tax. A company can ask HMRC to confirm in advance that the rule does not apply, under section 138. The same application usually asks for clearance under the transactions in securities rules in section 701 of the Income Tax Act 2007, and under section 748 of the Corporation Tax Act 2010 for shareholders that are companies. It goes to reconstructions@hmrc.gov.uk, and HMRC replies within 30 days, as set out in its statutory clearance guidance. A raise by a US investor is the commercial reason to set out in it.
When UK-resident shareholders later sell their US shares, capital gains tax is charged at 18% on gains within the basic rate band and 24% above it, after the £3,000 annual exempt amount for 2026/27, as listed on gov.uk. Business Asset Disposal Relief, at 18% for disposals from 6 April 2026, can still apply to a founder. The company must be the founder's personal company, with at least 5% of the shares and voting rights, the founder must be an employee or officer of a group company, and the company must be the holding company of a trading group, all for at least two years before the sale, under the gov.uk conditions.
Stamp duty at 0.5% would normally apply to the transfer of the UK shares. The relief for a share-for-share acquisition in section 77 of the Finance Act 1986 can remove it where the shareholders and their proportions stay the same and the reasons are commercial. Claim it by emailing the signed stock transfer forms to stampdutymailbox@hmrc.gov.uk, as set out on gov.uk.
SEIS and EIS relief in a flip
SEIS and EIS relief depends on the company that issued the shares meeting the scheme's rules for three years after each share issue. After a flip, the UK company is a subsidiary of the Delaware company, which breaks the independence requirement in section 185 of the Income Tax Act 2007, and the investors have exchanged their shares, which would normally be a disposal. Either one, inside the three years, withdraws income tax relief already given.
The continuity rules in section 247 for EIS and section 257HB for SEIS can carry the relief across to shares in a new holding company. The new company must have issued only subscriber shares, the exchange must be wholly for mirroring shares issued in proportion, the compliance certificates for the SEIS or EIS shares must already have been issued, and HMRC must confirm the commercial reasons in advance. The relief is then treated as attaching to the new company's shares, and the scheme's continuing requirements apply to the new company for the rest of the three years.
One of those requirements is a permanent establishment in the UK, meaning a fixed place of business here or an agent who habitually concludes contracts here. HMRC's VCM34050 states that an overseas parent must have one itself, and does not have one because it owns a UK subsidiary. A Delaware company whose staff, premises and contracts are all in the UK subsidiary usually has no UK permanent establishment of its own, so a flip inside the three years normally costs SEIS and EIS investors their income tax relief.
After the three years, the income tax relief is no longer at risk. The capital gains tax exemption on an eventual sale is a separate question. For EIS shares, a takeover after the three-year period can carry the exemption across to the acquirer's ordinary shares, where the new shares carry no preferential rights and HMRC is satisfied the exchange has commercial reasons, as described at VCM20190. For SEIS shares, VCM40170 adds that the acquirer must itself be an SEIS qualifying company that has issued compliance certificates. Ask each SEIS and EIS investor to take advice on their own position before the flip.
A flipped group also loses SEIS and EIS for future rounds. The UK subsidiary fails the independence requirement, and the Delaware parent can only issue qualifying shares if it meets every requirement, including having its own UK permanent establishment. If UK angel money is still needed, raise it before the flip and time the flip after the three-year periods end, or accept that later UK angels will invest without the reliefs. Our SEIS and EIS page covers the reliefs in detail.
EMI options in a flip
When the UK company becomes a 51% subsidiary, its EMI options become options over shares in a subsidiary, which is a disqualifying event under section 534 of the Income Tax (Earnings and Pensions) Act 2003. It is not one if replacement options that satisfy the EMI rules are granted, as HMRC's ETASSUM57080 explains.
Under Part 6 of Schedule 5 to that Act, replacement options over the Delaware company's shares must be granted within six months of it taking control, cover shares of the same total market value, and cost the employee the same total price. The Delaware company must meet the EMI independence and trading activities requirements when they are granted. The trading activities requirement includes a UK permanent establishment, and for a parent company it can be met by a group member that carries on the trade and has a permanent establishment here, under ETASSUM52080. Check the Delaware company against every EMI condition before promising employees that their options will keep EMI treatment.
If the options are not replaced under those rules, they lose EMI treatment from the disqualifying event. Under section 532, an option exercised within 90 days of the event keeps its EMI tax treatment in full. If it is exercised later, the growth in value after the event is taxed as employment income. Options granted after the flip are usually options over the Delaware company's shares under a US plan. Our EMI share options page covers the UK rules.
US filings and costs
These are the main US filings for the Delaware parent, from the Delaware Division of Corporations and the IRS. A US adviser should confirm the full list for your group.
- Delaware franchise tax and annual report. Both are due by 1 March each year. The Delaware Division of Corporations sets a minimum franchise tax of $175 under the authorised shares method or $400 under the assumed par value capital method, and an annual report fee of $50. Filing late costs a $200 penalty plus interest of 1.5% a month on unpaid tax.
- US federal corporation tax return. A US company files IRS Form 1120 each year to report its income and work out its federal income tax.
- Reporting the UK subsidiary. US persons who are officers, directors or shareholders of certain foreign corporations file IRS Form 5471, and the US parent of a UK subsidiary needs to check whether it is one of them.
Keeping the UK company for R&D relief
The UK subsidiary is a UK company and can keep claiming research and development relief on the work it carries out and pays for. Under the merged scheme, the credit is 20% of qualifying expenditure and is taxable. A loss-making small or medium-sized company whose qualifying R&D spending is at least 30% of its total expenditure, counting connected companies worldwide, can claim enhanced R&D intensive support, with an extra 86% deduction and a payable credit of up to 14.5% of the loss surrendered. The Delaware parent's spending counts in that 30% test.
Under the merged scheme, R&D contracted out is generally claimed by the customer that decided the R&D should be done. HMRC's CIRD161000 lets the company doing the work claim where the customer is an irrelievable client, which includes any person not acting in the course of a trade taxed in the UK in relation to the contract. A Delaware parent with no UK trade of its own is usually in that position, so the UK subsidiary can claim for R&D it carries out under a services agreement with the parent. Write the agreement before the work starts, and keep the R&D, its staff and its subcontractors in the UK, because both schemes restrict relief on overseas contractors and overseas externally provided workers. Our R&D tax credits page covers claims.
Payments between the two companies, such as the fee the parent pays for the UK company's services, fall under the UK transfer pricing rules if the group is outside the exemption for small and medium-sized enterprises. The United States is on HMRC's list of treaty partners whose treaties contain the non-discrimination article the exemption needs. The Delaware company can also count as an associated company of the UK subsidiary, which halves the £50,000 and £250,000 limits for the UK company's corporation tax rate where there are no other associated companies, under the rules on gov.uk.
When to flip
Agree the flip as part of the US term sheet, and complete it before the US round's money arrives, so the investors subscribe for shares in the Delaware company. Before agreeing, list every UK shareholder who has SEIS or EIS relief and the date each of their share issues reaches three years, every EMI option holder, and any R&D claim in progress. Those dates and figures show what the flip costs the existing shareholders. Our venture capital page and due diligence page cover the rest of the round.
Help with a Delaware flip
We handle the UK side of a flip: the HMRC clearances, the stamp duty claim, the SEIS, EIS and EMI position for each shareholder and option holder, and the UK subsidiary's accounts, tax and R&D claims afterwards. The work is quoted in writing before we start. Our pricing page lists our published fees, and you can get a quote for your accounts and tax.
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