BIM72415 - Partnerships: Mergers: Overview

Where two businesses, initially under different ownership, are brought together under common ownership there are a number of possibilities as to how these arrangements will be regarded for tax purposes. For ease of reference in the text below the two original businesses are referred as business A and business B and the ‘merged’ business as business C.

1. ACTUAL CESSATION OF ONE BUSINESS

The owner(s) of business A may merely acquire the assets of business B. In such a case the ‘merged’ business C is merely an enlarged version of business A.

Business A

If, at the ‘merger’, there is no change in ownership of business A then you do not apply ICTA88/S113 at all because there has been neither a complete nor a partial change in ownership - see BIM72220.

If, at the ‘merger’, there is a change in the ownership of business A (for example because the owner of business A admits the former owner of business B into partnership and that partnership thereafter carries on the ‘merged’ business) then there is a partial change in ownership of business A to which you should apply ICTA88/S113 (2). Business A is therefore treated as continuing.

Business B

Business B ceases to exist in any form and you should apply the normal cessation rules to that business.

2. ACTUAL CESSATION OF BOTH BUSINESSES

At the ‘merger’ of business A and business B a new business (business C) may be created which is entirely different in nature to either business A or business B.

In such circumstances the two original businesses have ceased (ICTA88/S63) and an entirely new business commenced (ICTA88/S61).

You apply the normal cessation rules both to business A and to business B and the normal commencement rules to business C.

3. CONTINUATION OF BOTH BUSINESSES

Where the activities of business A and business B are similar in nature the activities of ‘merged’ business C may have the same essential characteristics as both business A and business B.

Taken in isolation this merged business may properly be described as a single business (business C). Otherwise no merger has taken place and business A and business B are simply continuing side by side under common ownership. Considered in this context the new business can also be described as an enlarged version of either business A and business B. In such circumstances business C has ‘succeeded’ to business A and/or business B.

If, at the merger, there is no change in ownership of one business (say business A) then you apply neither ICTA88/S113 (1) nor ICTA88/S113 (2) to that business and you regard that business as continuing.

If, at the merger, there is a complete change of ownership of one business (say business B) then you apply the cessation rules in ICTA88/S113 (1) to that business.

If, at the merger, there is a partial change of ownership of both businesses then you apply the continuation rules in ICTA88/S113 (2) to both.