Capital reduction demergers
Produced in partnership with Zoe Feller of Bird & Bird
Capital reduction demergers

The following Tax guidance note Produced in partnership with Zoe Feller of Bird & Bird provides comprehensive and up to date legal information covering:

  • Capital reduction demergers
  • When is a capital reduction demerger appropriate?
  • Which tax clearances are needed?
  • Steps in a capital reduction demerger
  • Step one—insert a new holding company
  • Step two—transfer the demerged subsidiary to the new holding company
  • Step three—capital reduction of the new holding company
  • Partition demergers

FORTHCOMING CHANGE on amendments to FA 1986, s 77A: Finance Bill 2020 amends, with effect from Royal Assent, section 77A of Finance Act 1986 (FA 1986) to ensure that stamp duty relief under FA 1986, s 77 can still apply if the person who obtains control of the acquiring company has held at least 25% of the issued share capital of the target company at all times during the period of three years immediately before the time when shares are issued by the acquiring company as consideration for the acquisition of target. The aim is for this change to prevent a stamp duty double charge from arising in respect of partition demergers (see paras 30 and 35 of the summary of responses to the consultation on aligning the stamp duty and SDRT consideration rules). For more information, see News Analyses: Draft Finance Bill 2019–20—Tax analysis—Stamp taxes on securities—amendments to FA 1986, s 77A and Publication of Finance Bill 2020 and consultations—Legislation published in draft on 11 July 2019.

The reasons why a company might carry out a demerger, and the different ways in which a demerger may be structured, are described in Practice Note: Demergers—an introduction to the tax issues.

More detailed Practice Notes describe the tax issues associated with the main demerger routes, namely:

  1. statutory (or dividend) demergers, which may be