Demergers can be a useful means of dividing up a business or group, but the search for a tax-efficient mechanism can lead to tax pitfalls if the wrong structure is chosen, or the process is not properly implemented.
In simple terms, a demerger is a transaction whereby some of the assets of one company are transferred to another entity, usually owned by some or all of the shareholders of the transferring company. The assets being transferred can be shares in other companies or trading assets.
Common reasons for carrying out a demerger include:
A capital reduction demerger is a process which allows a demerger of assets from a company, often as part of a wider reorganisation, to take place in a manner which is tax efficient (and can sometimes be entirely tax neutral) for the shareholders.
This is achieved by using particular corporate structures to ensure that the transfer of assets which are to be demerged is treated as a capital, rather than an income, distribution. This capital distribution may then qualify for certain tax reliefs. Transfers of property without crystallising VAT and/or SDLT liabilities may also be possible.
The corporate team at Lupton Fawcett has extensive experience of all types of corporate reorganisations. Over the last few years we have advised a range of clients on all forms of capital reduction demergers. We can assist with the initial consideration of the tax implications, including the submission of a tax clearance to HMRC, the implementation of the legal documents giving effect to the demerger and the submission of applications for any available tax reliefs. We will be very pleased to discuss the options with you so please feel free to get in touch.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.