½Û×ÓÊÓƵ

This guidance note gives an overview of why and how companies and groups demerge, and the aims and process of tax planning for demergers.

In simple terms, a demerger involves the separation of a company’s business into two or more parts, typically carried on by successor companies under the same ownership as the original company.

Companies (and groups) may want to split out their activities for many different reasons. There may be a desire to focus management on one specific part of the business or there may be conflicting interests between shareholders. There could also be legal reasons to separate a trade out from the rest of the group (eg to ring fence liabilities). It may be the only way for a purchaser to be able to buy certain parts of the business.

While demergers are usually triggered by a variety of commercial reasons, a business undergoing a demerger will also want to minimise, and ideally eliminate, any tax charges arising on the demerger.

The different mechanisms for achieving a tax efficient demerger fall into three main