CheckLists.Tax (beta)
G15. Statutory demerger
Statutory demerger​
Conditions for relief
​
Situations where relief does not apply
- If main object is the acquisition of control of a participating company by a third party.
- Investment businesses.
​
Direct or indirect
​
Direct statutory demerger
Shares in a subsidiary are distributed directly to all or some of the shareholders.
​
Indirect statutory demerger of shares
Shares in a subsidiary are distributed to a Newco in return for that Newco issuing shares to all or some of the shareholders of Oldco.
​
Indirect statutory demerger of trade
Trade is transferred to a Newco in return for that Newco issuing shares to all or some of the shareholders of Oldco.
​
Partition or reconstruction ​
Partition
Shareholdings across the companies after the demerger do not mirror those before.
​
Reconstruction
Shareholdings across the companies after merger do mirror those before.
​
Income tax​ for shareholders
Exemption
- Exempt distribution is not a distribution for the purposes of corporation tax
Legislation: CTA 1075(1)
Cases:
HMRC manuals:
Commentary:
See also:
​
​
- Income or capital for person receiving shares
​
Trustees
- The basic position is that the shares received in a direct demerger are capital, but those in an indirect demerger are trust income.
- Trusts (Capital and Income) Act 2013, s.2, classifies al shares on a tax exempt demerger as capital (TSEM3787).
​
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Capital gains tax for shareholders
Direct demerger
​
Reorganisation of share capital treatment
XX
Legislation: TCGA s.192(2).
Cases:
HMRC manuals:
Commentary:
See also:
​
Unless substantial shareholding exemption applicable
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Indirect demerger
​
Reorganisation of share capital treatment
- TCGA s.192 only applies to distributions that are exempt under CTA 2010 s.1076 (i.e. direct demergers).
- Section 136 applies the share reorganisation rules to the shares held before the the shares/debentures held after.
- Must be a scheme of reconstruction.
- Newco must issue shares to original shareholders/a class of them in proportion to their holdings in Oldco.
Legislation: TCGA s.136
Cases:
HMRC manuals:
Commentary:
See also:
​
Capital gains for Oldco
Direct demerger: need to rely on substantial shareholding exemption
- TCGA s.139 only applies where there is a transfer of all or part of Oldco's business to a Newco.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Indirect demerger: no gain/no loss disposal
No gain/no loss disposal means substantial shareholding exemption does not apply.
Legislation: TCGA s.139; Sch 7AC, para 6(1)(a).
Cases:
HMRC manuals:
Commentary:
See also:
​
Corporation tax
Transfer of intangibles
Usually tax neutral.
Legislation: CTA 2009, s.818
Cases:
HMRC manuals:
Commentary:
See also:
​
Loss carry forward following transfer of trade
Reconstruction
Usually neutral.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Partition
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Capital allowances following transfer of trade​
Reconstruction
Usually neutral.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Partition
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
SDLT: degrouping on demerger of subsidiary
​
Direct demerger: degrouping charges may arise for past transfers on which group relief was claimed
XX
Legislation: FA 2003, Sch 7, para 3.
Cases:
HMRC manuals:
Commentary:
See also:
​
Indirect reconstruction demerger: no degrouping charges
XX
Legislation: FA 2003, Sch 7, para 4(6)
Cases:
HMRC manuals:
Commentary:
See also:
​
Indirect partition demerger: degrouping charges
XX
Legislation: FA 2003, Sch 7, para 4(6)
Cases:
HMRC manuals:
Commentary:
See also:
​
SDLT: land transferred when transferring trade
​
Transfers of land in a reconstructions normally exempt
XX
Legislation: FA 2003, Sch 7, para 7 and 8
Cases:
HMRC manuals:
Commentary:
See also:
​
Transfers of land in a partition charged at 0.5%
XX
Legislation: FA 2003, Sch 7, para 7 and 8
Cases:
HMRC manuals:
Commentary:
See also:
​
​
Stamp duty
Direct demerger: no stamp duty
Distribution of shares is not a sale.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Indirect partition demerger: no stamp duty
Distribution of shares is not a sale.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Indirect reconstruction demerger: no stamp duty
Distribution of shares is not a sale.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Degrouping charges: direct demerger
Capital gains tax
Disapplied.
Legislation: TCGA s.192(3)
Cases:
HMRC manuals:
Commentary:
See also:
​
Loan relationships
- De-grouping charge does not apply if the transferee ceases to be a member of the group as a result of a s.1075 exempt distribution.
- Unless there is a chargeable payment within 5 years of the distribution.
- For chargeable payments see CTA 2010, s.1088.
Legislation: CTA 2009, s.345 and 346.
Cases:
HMRC manuals:
Commentary:
See also:
​
Intangible fixed assets
Disapplied
Legislation: CTA 2009, s.787.
Cases:
HMRC manuals:
Commentary:
See also:
​
​
Degrouping charges: indirect demerger
Capital gains tax
- Tax free uplift in base cost of assets within s.179.
- Unless arrangements had a main purpose of avoiding tax.
Legislation: TCGA s.139; s.179
Cases:
HMRC manuals:
Commentary:
See also:
​
Loan relationships
- Degrouping charge if transferee ceases to be a member of the group within 6 years.
- No degrouping charge if transferor ceases to be a member of the group.
Legislation: CTA 2009, s.344; s.345.
Cases:
HMRC manuals:
Commentary:
See also:
​
Intangible fixed assets
XX
Legislation: CTA 2009, s.787.
Cases:
HMRC manuals:
Commentary:
See also:
​
​