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HMRC internal manual

Corporate Finance Manual

Loan relationships: group continuity: degrouping: exempt distributions

Exception for exempt distributions

CTA10/Part23/Ch5 (see CTM17250) is intended to facilitate demergers of companies - a company may leave a group because its business can be run more efficiently under independent ownership. Where this happens, CTA10/Part23/Ch5 makes the distribution of the company’s shares an ‘exempt distribution’ - it removes the distribution charge that would otherwise be imposed.

It would be anomalous were CTA09/PT5/CH4 to impose a charge on a company leaving a group in circumstances where other legislation is specifically designed to remove tax barriers to genuine commercial restructurings. So if a company leaves a group only because of an exempt distribution (defined as one falling within CTA10/Part23/Ch5), there is no de-grouping charge under CTA09/PT5/CH4 on its loan relationships.

Exceptionally, a company may attempt to later exploit a demerger for avoidance purposes, by transferring company funds or assets to its members. Such transfers, if they occur within five years of a demerger, are taxed under as ‘chargeable payments’ by CTA10/S1086 - CTM17290 gives details. Where such chargeable payments are made, the exemption from S345 is also reversed. CTA09/S346 treats the company as disposing of, and immediately reacquiring, the loan relationship at fair value when the chargeable payment is made.