Type 1 (direct) statutory demerger

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Type 1 (direct) statutory demerger
  • Type 1 ‘Direct demerger’ ― overview
  • Reliefs for shareholders
  • Relief for distributing company
  • Degrouping charge exemption
  • Stamp Taxes
  • VAT
  • Tax issues for the transferred subsidiary company

This guidance note deals with the tax consequences for shareholders and companies involved in a ‘Type 1’ ‘Direct’ Statutory demerger. For an introduction to Statutory demergers, including an overview and diagrams of the three permitted types of demerger, conditions for a statutory demerger, chargeable payments and clearances and reporting, see the Statutory demergers ― introduction guidance note.

For overall guidance on demergers, including choice of the most appropriate route and planning the demerger project, see the Demergers ― overview guidance note.

Statutory demergers are sometimes referred to as 'Exempt demergers'.

Type 1 ‘Direct demerger’ ― overview

In a 'Type 1' demerger, separate groups of shareholders acquire shares in separate 75% subsidiaries from the original holding company. It is permitted for all or any of the shareholders to acquire shares in this way.

CTA 2010, s 1076

A simple illustration of a Type 1 demerger is as follows:

The following is a diagram of a direct demerger of two trading subsidiaries to different shareholders:

More on Demergers: