Type 1 (direct) statutory demerger

By Tolley
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The following Owner-Managed Businesses 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.

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

There were significant changes to the corporate gains rules for groups of companies included in Finance Act 2011. These came into effect from 19 July 2011, the date of Royal Assent. The measures aim to simplify the tax treatment of chargeable gains for corporate groups, and included changes to degrouping charges, SSE and the repeal of certain measures which were considered to be redundant.

For more information on SSE see the Overview of the substantial shareholding exemption guidance note.

For more information regarding degrouping charges see the Degrouping charges guidance note in the Corporate Tax module (subscription sensitive).

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

The shareholders receive shares in th

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