Taxation of Chargeable Gains Act 1992 section 192

Tax exempt distributions

Section 192 provides capital gains tax relief for demergers, ensuring that when a company or group splits its trading activities into two or more independent companies or groups through an exempt distribution, shareholders are not subject to an immediate capital gains charge.

• When a company makes an exempt distribution of subsidiary shares to its members (a direct demerger), the distribution is not treated as a capital distribution — instead, it is treated as a reorganisation of share capital, so no immediate chargeable gain or allowable loss arises for the shareholders.
• The original base cost of the distributing company's shares is apportioned between the shares retained in the distributing company and the new shares received in the demerged company — for quoted shares, this is based on market values on the first day the demerged shares are listed; for unquoted shares, it is based on values at the date of any subsequent disposal.
• The degrouping charge that normally arises when a company leaves a group does not apply where the departure is solely the result of an exempt distribution — however, this protection is lost if a chargeable payment is made within five years of the exempt distribution.
• If a chargeable payment is made within the five-year period, HMRC has at least three years from the date of that chargeable payment to raise an assessment for the degrouping charge, and a "group" for these purposes means a company together with its 75 per cent subsidiaries.