Taxation of Chargeable Gains Act 1992 section 181

Exemption from charge under 178 or 179 in the case of certain mergers

Section 181 provides an exemption from the degrouping charge that would otherwise arise when a company leaves a group, where the departure occurs as part of a qualifying merger carried out for genuine commercial reasons.

• When a company leaves a group as part of a genuine commercial merger, the usual degrouping charge under sections 178 or 179 does not apply, provided tax avoidance is not a main purpose of the merger.
• A qualifying merger requires a reciprocal exchange: one or more outside acquiring companies must obtain interests in the departing company's business, while one or more members of the original group must obtain interests in the acquiring companies' businesses, with both sides acquiring for retention rather than resale.
• At least 25 per cent by value of each interest exchanged must consist of ordinary share capital, the values exchanged must be substantially equal, and the consideration paid by the acquiring companies must either consist of, or be applied in acquiring, the interests received by the original group.
• For the purposes of this exemption, a member of a group is treated as carrying on the entire group's activities as a single business, and the value of each interest is determined at the date it is acquired.