Key considerations

One of the key aspects when carrying out a demerger, from a tax perspective, is to mitigate or avoid any tax charge from splitting up the business or group.

Statutory demergers provide businesses with a mechanism to demerge in a tax efficient manner, but because of the strict conditions that must be met the application of statutory demergers is limited. For example, the statutory demerger route cannot apply to non-trading businesses or where arrangements are in place at the time of the demerger to sell the demerged or successor company. In addition, there are rules (the chargeable payments rules) that can result in a tax charge if certain events take place within five years after a statutory demerger. In practice, these rules can make statutory demergers unattractive.

For cases where the statutory demerger route is suitable, and provided the relevant conditions are met, the demerger should