Demergers
There are special statutory demerger provisions that are designed to make it easier to divide and place into separate corporate ownership the trading activities of a company or group of companies. Using these provisions, an exempt demerger will be deemed to take place and the distribution will normally be exempt for Income Tax purposes and usually not give rise to any CGT as the gains are effectively rolled over.
The provisions do not apply where a trading activity is to be sold or becomes owned by a person other than the existing member of the original company.
The provisions allow the removal of the distribution charge in appropriate circumstances, making the distribution an ‘exempt distribution’. This applies to trading activities only. Companies that make use of the demerger provisions range from small private companies to some of the UK’s largest public companies.
The legislation also provides for a clearance procedure. Using this a company that wants to demerge trading activities can obtain advance confirmation from HMRC that the distribution that will arise will be an exempt distribution.
The use of these demerger provisions, when available, can be beneficial and help companies avoid adverse consequences of other more complex demerger options.
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