Type 2 and 3 (indirect) statutory demergers

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

  • Type 2 and 3 (indirect) statutory demergers
  • Type 2 ― indirect demerger ― trades transferred
  • Type 3 ― indirect demerger ― shares transferred
  • 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 either a ‘Type 2’ or ‘Type 3’ ‘Indirect’ 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 2 ― indirect demerger ― trades transferred

A ‘Type 2’ indirect demerger involves the transfer by all or some of the shareholders of the 75% trading subsidiaries’ trades instead of the shares to the new companies set up by shareholders. Consideration is in the form of shares in the new companies.

CTA 2010, s 1077

This may be illustrated as follows:

Type 3 ― indirect demerger ― shares transferred

In a 'Type 3' indirect demerger, some or all of the shareholders set up new companies to acquire shares in separate 75% subsidiaries

More on Demergers: