Statutory demergers—the tax conditions
Statutory demergers—the tax conditions

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

  • Statutory demergers—the tax conditions
  • Direct demergers
  • Indirect demergers

This Practice Note is about the conditions that a statutory (ie dividend) demerger, whether direct or indirect, must satisfy if it is to qualify as an exempt distribution, and therefore not result in an income tax (or corporation tax on income) charge for the shareholders.

For background on why a company might carry out a demerger, and an introduction to the other ways in which a demerger may be structured, see Practice Note: Demergers—an introduction to the tax issues.

For information on:

  1. what a statutory demerger is

  2. the difference between the direct and indirect routes

  3. the circumstances in which a company might choose to carry out a statutory demerger

  4. the steps involved

  5. the tax implications, and

  6. why it is important for a statutory demerger to qualify as an exempt distribution

see Practice Note: Statutory demergers.

Direct demergers

The following conditions must be met for the transfer of shares under a direct statutory demerger to be treated as an exempt distribution.

Condition A

Both the distributing company and each subsidiary whose shares are distributed (together with the distributing company, known as the relevant companies) must be resident in a Member State of the EU at the time of the distribution.

As of exit day (31 January 2020) the UK is no longer an EU Member State. However, in accordance with the Withdrawal Agreement, the UK has