Commentary

D6.423 Exempt demerger—chargeable payments

Corporate tax
Corporate tax | Commentary

D6.423 Exempt demerger—chargeable payments

Corporate tax | Commentary

D6.423 Exempt demerger—chargeable payments

Tax treatment of chargeable payments

The distribution that is made under a statutory demerger should, provided it meets the necessary conditions outlined at D6.605, be treated as exempt (ie it is not treated as a distribution) and so should not trigger any charge to income tax or corporation tax on income in the hands of the shareholders.

However, certain payments subsequently made in connection with any of the shares involved in the demerger may give rise to a charge to income tax on the recipient.

Such payments are known as 'chargeable payments' and give rise to a tax liability if they are made within five years after the making of the exempt distribution1. Broadly, these are payments of any kind by a company to its members, directly or indirectly, which are money payments or the transfer of money's worth.

Typical examples

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