Glossary · UK
What is Demerger Relief?
A statutory relief allowing a company to distribute a subsidiary to its shareholders without triggering income tax or CGT, if qualifying conditions are met.
Full Definition
Demerger Relief under ICTA 1988 Sections 213-219 (now CTA 2010 Part 23) allows a company to separate its trade or subsidiary into a new company distributed to shareholders without triggering a chargeable distribution for income tax purposes or a deemed disposal for CGT purposes. Known as an exempt demerger, the conditions include: the distributing company must be a trading company or the holding company of a trading group; both resulting companies must be trading companies or holding companies of trading groups; no scheme or arrangement must be in place to acquire control of either resulting company. HMRC advance clearance is strongly recommended under Section 215. A Section 110 liquidation demerger (under Insolvency Act 1986) is an alternative approach where the company is wound up and the assets distributed via a liquidator under a scheme of reconstruction, potentially qualifying for CGT roll-over treatment for shareholders.