Type 1 (direct) statutory demerger ― tax implications

Produced by a Tolley Corporation Tax expert

Corporation Tax

Guidance

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 ― overview 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 1 ‘Direct demerger’ ― overview

In a Type 1 demerger (also known as a direct dividend 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.

A simple illustration of a Type 1 demerger is as follows:

The following is a diagram of a direct demerger of two trading subsidiaries to different shareholders:

Reliefs for shareholders

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