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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
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The degrouping charge: mergers: the conditions

A merger is an arrangement or series of arrangements which satisfies all the following conditions.

  • One or more companies (`the acquiring company’ or `the acquiring companies’) none of which is a member of the A group acquires or acquire, otherwise than with a view to their disposal, one or more interests in the whole or part of the business which, before the arrangement took effect, was carried on by company A (TCGA92/S181 (2)(a) ).
  • One or more members of the A group acquires or acquire, otherwise than with a view to their disposal, one or more interests in the whole or part of the business or each of the businesses which, before the arrangement took effect, was carried on either by the acquiring company or companies or by a company at least 90 per cent of the ordinary share capital of which was beneficially owned by two or more acquiring companies (TCGA92/S181 (2)(b) ).
  • At least 25 per cent by value of each of the interests acquired-

    • by the acquiring company or companies in the company A business
    • by the A group in businesses carried on by the acquiring company or companies (or their 90 per cent subsidiaries)

consists of a holding of ordinary share capital.

  • The remainder of each interest acquired by the A group in businesses carried on by the acquiring company or companies (or their 90 per cent subsidiaries) consists of a holding of share capital (of any description) or debentures, or both (TCGA92/S181 (4)(a) ).
  • The value of the interests acquired by the acquiring company or companies in the company A business is substantially the same as the value of the interests acquired by the A group in businesses carried on by the acquiring company or companies (or their 90 per cent subsidiaries) (TCGA92/S181 (4)(b) ).
  • The consideration for the acquisition of the interests acquired by the acquiring company or companies in the company A business (disregarding any part of the consideration which is small compared with the total) either consists of, or is applied in the acquisition of, the interests acquired by the A group in businesses carried on by the acquiring company or companies (or their 90 per cent subsidiaries) (TCGA92/S181 (4)(c)).

For the purposes of the first two conditions, a member of a group of companies is treated as carrying on as one business the activities of the entire group (TCGA92/S181 (3)). The value of an interest is determined as at the date of its acquisition (TCGA92/S181 (4)).

Where each of two UK groups X and Y contributes a business to a merger arrangement, then one or more companies may leave each group. Section 181 applies independently to each group. In relation to a company leaving the X group, the X group will be `the A group’ within the terms of Section 181, and the acquiring company or companies will be in the Y group. In relation to a company leaving the Y group, the Y group will be `the A group’ within the terms of Section 181, and the acquiring company or companies will be in the X group.