Demergers

A demerger means the separation of a company’s business into two or more parts, typically carried on by successor companies under the same ownership as the original company.

A business undergoing a demerger will want to minimise any tax charges triggered by the demerger itself. The main concerns are likely to be:

1. •

   that the receipt of shares in the successor company by the shareholders of the target company is not charged to:

   1. ◦

      income tax (or corporation tax on income) as a distribution, or

   2. ◦

      capital gains tax (or corporation tax on chargeable gains) as a disposal or part disposal of their shares in the target company

2. •

   that the disposal of the demerged business by the target company is not taxed as a chargeable gain, and that the demerger does not trigger degrouping charges (including degrouping charges under the intangible asset, loan relationships or derivative contracts rules), and

3. •

   that the demerger does not trigger any charges to stamp taxes on shares or land

The need to obtain tax clearances must be factored into the transaction timetable.

For an introduction to the different