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HMRC internal manual

Capital Gains Manual

Demergers: introduction

CTA10/S1075 & TCGA92/S192

A demerger is a series of transactions which have the effect and purpose of dividing the trading activities carried on by a single company or group of companies between two or more companies or groups of companies. CTA10/S1075 and TCGA92/S192 provide special tax treatment if certain conditions are met. Companies may seek advance clearance under CTA10/S1091 that proposed transactions will be an exempt demerger. CTM17200 onwards gives further guidance on the action to be taken by local offices in dealing with demergers.

Direct demergers - CTA10/S1076

One type of demerger, which is referred to in these instructions as a `direct demerger’, falls within CTA10/S1076. This is where

  • a company (`the distributing company’)
  • makes a distribution to its members
  • consisting of shares (`the demerged shares’)
  • in a company (`the demerged company’)
  • which is a 75 per cent subsidiary of the distributing company.

Indirect demergers - CTA10/S1077

Other types of demerger fall within CTA10/S1077. These are referred to in these instructions as `indirect demergers’. The conditions are that

  • a company (`the distributing company’)
  • makes a distribution to one or more other companies (`the transferee company or companies’)
  • consisting of either
  1. a trade or trades, or
  2. shares in one or more 75 per cent subsidiaries


  • shares (`the issued shares’) are issued by the transferee company or companies to shareholders of the distributing company.

Income Tax treatment

Where there is an exempt demerger, the distribution of the shares of the demerged company in a direct demerger (or the issue of shares by a transferee company in an indirect demerger) is not a distribution by the distributing company for the purposes of Corporation Tax and it is not dividend income of the shareholders. Therefore there is no Income Tax liability of any kind in respect of the receipt of the shares.