Back to basics: Statutory demergers

Chris Holmes and Ben Handley in our London Tax Group authored “Back to basics: Statutory demergers”, published by Tax Journal on 9 April 2021.

Statutory demergers provide a relatively quick and simple method of separating a company’s activities. They allow business owners the flexibility to separate their trading activities without crystallising a dry tax charge and avoid the cost of more complex demerger alternatives. There are ‘direct’ and ‘indirect’ statutory demergers, with strict conditions which mean that they will not be appropriate in some circumstances. They rely on specific provisions of CTA 2010 to effect an ‘exempt distribution’ in the hands of shareholders. Advance statutory clearance can be requested. The distributing company must make a return to HMRC within 30 days of making the distribution.

The article includes sections on:

  • Purpose and use of the statutory demerger provisions
  • How does the exemption work?
  • Direct statutory demergers
  • Indirect statutory demergers
  • Comparing statutory demergers with other types of demerger:
  • Can they be used to split trading activities?
  • Can they be used to split non-trading/mixed activities?
  • Can they be implemented in contemplation of a sale?
  • Can obtain advance clearance be sought from HMRC?
  • Is relief from stamp duty/SDLT on implementation available?
  • Ability to exempt de-grouping charges
  • Flexibility of implementation steps
  • Complexity
  • Capital payment restrictions post-demerger.
  • Administration
  • Recent developments
  • Points to watch in practice.
  • Recent developments

In the right circumstances, the statutory demerger provisions provide a tidy mechanism for companies and groups to demerge their trading activities through a simplified process, avoiding the cost of more complex demerger alternatives.

As for all demergers, robust implementation is key, and all relevant taxes and company law implications will need to be considered.

We trust that you will find the article informative and interesting.

For more information, or for assistance, please contact Chris Holmes, or Ben Handley.