The reasons why a company might carry out a demerger, and the different ways in which a demerger may be structured, are described in Practice Notes: Demergers—an introduction to the tax issues and Demergers—an introduction for corporate lawyers.

More detailed Practice Notes describe the tax issues associated with the main demerger routes, namely:

1. •

   statutory (or dividend) demergers, which may be direct or indirect—see Practice Note: Statutory demergers

2. •

   liquidation demergers—see Practice Note: Liquidation demergers, and

3. •

   capital reduction demergers—which are the subject of this Practice Note

A capital reduction demerger involves the top company of the target group reducing its capital, in consideration for which the demerged business is transferred to a new holding company that in turn issues shares to the shareholders.

Unlike a statutory demerger, a capital reduction demerger does not qualify for the tax reliefs that are specifically available for exempt distributions. It may, nonetheless, be carried out in such a way that it does not trigger tax charges, either on income or capital, for the shareholders or any