Commentary

D6.420 Overview of the demergers legislation

Corporate tax
Corporate tax | Commentary

D6.420 Overview of the demergers legislation

Corporate tax | Commentary

Demergers

D6.420 Overview of the demergers legislation

A demerger is a transaction or a series of transactions whereby a business or businesses carried on by companies in a group are taken out of the group and run under separate management but with virtually the same shareholders.

There are many commercial reasons why a demerger may be attractive. These include the following:

  1.  

    •     to unlock shareholder value (for example, if one comparatively profitable business is being undervalued by association with other comparatively less profitable businesses)

  2.  

    •     to ring-fence liabilities attaching to a particular business or as a precursor to a disposal of a business

  3.  

    •     to split the ownership of separate businesses between different sets of shareholders (more relevant to private companies) or as a way to focus management

There can also be tax benefits from carrying out a demerger. One of the most significant tax advantages is that on a subsequent sale of one of the demerged companies, the sale proceeds would be realised by the shareholders themselves rather than by the holding company of their group. This results in the shareholders paying capital gains tax at 10% under business

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