Statutory demergers
Statutory demergers

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Statutory demergers
  • When is a statutory demerger appropriate?
  • Distributable reserves
  • Tax conditions
  • Chargeable payments
  • Which tax clearances are needed?
  • Partition demergers
  • Direct or indirect?
  • Direct demerger step one—pre-demerger hive-down
  • Tax implications of the hive-down
  • More...

This Practice Note is about the tax implications of a statutory demerger.

It is possible to carry out a demerger by a company (the target company) declaring a dividend in specie of the shares of a subsidiary (the demerged subsidiary).

Demergers that are carried out in this way, and that satisfy a number of conditions, should not trigger charges to income tax, capital gains tax or corporation tax, either at shareholder or company level. Demergers meeting the conditions are known as statutory (or dividend) demergers. The dividend in specie of the shares in the demerged subsidiary is classified, for tax purposes, as an exempt distribution.

The dividend can be paid (and the shares in the demerged subsidiary transferred) either:

  1. directly to some or all of the target company's shareholders (a direct statutory demerger), or

  2. indirectly to one or more other companies (the transferee company or companies), which then issue shares to some or all of the target company's shareholders in proportion to their original shareholdings (an indirect statutory demerger, sometimes known as a three-cornered demerger)

An indirect statutory demerger can also be achieved by the target company transferring a trade or trades to one or more other companies that then issue shares to some or all of the target company's shareholders in proportion to their original shareholdings.

This Practice Note explains:

  1. the circumstances in which a statutory

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