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Capital reduction demergers are rare, but they can play an important part in corporate tax planning
KEY POINTS
- The potential advantages of a capital reduction demerger.
- Devising a structure that is a return of capital under CTA 2010.
- A worked example outlines the steps that are required in a reconstruction.
- Care may be needed to avoid a “dividend block” situation.
- Uneven stamp duty costs will need to be taken into account.
Capital reduction demergers lie at the esoteric end of group tax planning but there is little reason why these courses of action should be so rarely encountered and this article intends to tread a relatively straightforward path through the legislation in order to demonstrate how effective they can be.
Capital reduction demergers are most clearly evident in the reconstructions of a number of public companies. Examples from the last few years include:
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