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HMRC internal manual

Capital Gains Manual

Direct demergers: trustees discretionary trusts etc

Trustees of a trust outside CG33931 are treated in the same way as individuals, see CG33920 above. The demerged shares in the first instance belong to the trustees even if they are obliged to distribute them or their cash equivalent. If however they then, of necessity or by choice, distribute the demerged shares to one or more beneficiaries, there is a disposal of those shares at market value. The chargeable gain or allowable loss is the market value of the shares at the date of distribution, less the appropriate fraction of the original cost of the distributing company shares, apportioned in accordance with CG33920 above. If the shares are income in the hands of the beneficiary that does not affect the computation of the trustees’ chargeable gain. Where part only of the income of a trust is payable at the trustees’ decision, and the other part belongs to beneficiaries with interests in possession as it arises, it may be necessary to apportion the shares received in a demerger and deal with the first part under this paragraph and the balance under CG33931-CG33932 or CG33933 as appropriate.