Q&As

In a liquidation demerger involving a hive-up of assets to a ‘Liquidation Holdco’, does a capital gains degrouping charge arise?

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Published on LexisPSL on 14/04/2020

The following Tax Q&A provides comprehensive and up to date legal information covering:

  • In a liquidation demerger involving a hive-up of assets to a ‘Liquidation Holdco’, does a capital gains degrouping charge arise?

In a liquidation demerger involving a hive-up of assets to a ‘Liquidation Holdco’, does a capital gains degrouping charge arise?

The capital gains degrouping charge analysis on a liquidation demerger will depend on precisely how that transaction is structured.

Depending on the facts, it may be that a ‘Liquidation Holdco’ to whom a demerging business has been hived up does not leave the capital gains group whilst holding the hived-up business assets, as is required for a charge to arise under section 179 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). This would be because those assets are transferred to a ‘Newco’ on the liquidation. In such a case, no degrouping charge would arise.

However, as explained in Practice Note: Liquidation demergers, in other cases, for instance where a demerging business is hived down to a newly-formed subsidiary (Company Y) under the target company, and then Company Y is hived up to a ‘Liquidation Holdco’, a degrouping charge could arise in Company Y when it leaves the group on its transfer to a ‘Newco’ on the liquidation of Liquidation Holdco. However, as explained in the above Practice Note, in practice there should be no resulting degrouping tax charge liability in Company Y.

As explained in Practice Note: Capital gains degrouping, under main section ‘Share exchanges

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