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HMRC internal manual

Business Income Manual

Businesses: mergers and demergers: text of Statement of Practice SP 9/86

The Income Tax treatment for partnership mergers and demergers was the subject of a Press Release and Statement of Practice (SP 9/86) dated 10 December 1986. The text is given below.

SP 9/86 was written in terms of the taxation provisions as they applied prior to the introduction of the current year basis (see BIM81010) and rewrite of the commencement and cessations provisions which were previously in the Income and Corporation Taxes Act 1988. However, the general principles set out in the Statement of Practice apply equally where there is a merger/demerger after the introduction of the current year basis.

You should however note that:

  • the option for a continuing business to be treated as having ceased and recommenced on a partial change of ownership no longer applies.,
  • SP 9/86 refers specifically to mergers of partnerships but its principles apply equally to the merger of sole trades into partnerships, such mergers being governed by exactly the same statutory provisions.

SP 9/86 (10 December 1986) Partnership mergers and demergers

  1. This statement explains the basis on which the Revenue apply the provisions of S113 ICTA 1988 (change in ownership of trade, profession or vocation) to mergers and demergers of partnership businesses. In the following paragraphs, the word `business’ means trades, professions or vocations carried on in partnership.


  1. When two businesses which are carried on in partnership and which are different in nature merge, it may be that the result of the merger is a new business, different in nature from either of the previous business. Whether this is so is a question of fact to be determined according to the circumstances of each case. Where it is the case, the old businesses will have been permanently discontinued, and a new business commenced; S113 ICTA 1988 will therefore not apply and the normal commencement and cessation provisions will apply to each business respectively.
  2. However, where two partnership businesses in different ownership carrying on the same sort of activities are merged and then carried on by the joint owners in partnership, the total activities of both businesses may continue, even though in a merged form, i.e. the new partnership may succeed to the businesses of the old partnership. In that event S113(2) ICTA 1988 applies to both successions, so that both businesses are deemed to have continued.
  3. It will of course be a question of fact whether succession has occurred and in this connection disparity in size between the old partnerships will not of itself be a significant matter.


  1. When a business carried on in partnership is divided up, and several separate partnerships are formed, it will again be a question of fact, to be determined according to the circumstances of each case, whether any of the separate partnerships carries on the same business as was carried on previously by the original partnership. It might be that one of the businesses carried on after the division was so large in relation to the rest as to be recognisably `the business’ as previously carried on; but that will frequently not be the case, and if it is not the case then the business will have ceased.
  2. The Revenue would want to look carefully at any case where it was claimed that a demerger of a partnership had occurred but it appeared that the demerger was more apparent than real, and that the demerger seemed to have taken place for fiscal reasons. The Revenue might wish to argue that in such a case the same trade was being carried on after the demerger as before.

[Note: Despite the reference to partnership businesses in the text, the Revenue regard the principles set out in SP 9/86 as applying equally where:

* businesses previously carried on by sole traders are merged and are subsequently carried on by a partnership; and
* a business carried on by a partnership is demerged and the businesses are subsequently carried on by sole traders.]