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HMRC internal manual

Capital Gains Manual

Demergers: example

Trustees of a discretionary trust acquire 1,000 shares in a quoted company X Ltd for £5,000. In due course X Ltd distributes 500 shares in its subsidiary Y Ltd. This is an exempt demerger. The respective values of the holdings at the first date of quotation of the shares in Y Ltd are X Ltd £18,000, Y Ltd £6,000. The trustees subsequently dispose of their shares in Y Ltd to the beneficiaries when their value is £8,000. The computation is as follows.

Apportion costs between X Ltd and Y Ltd shares by reference to market value on first day of quotation. This gives for the Y Ltd shares:

Actual cost 6,000 x 5,000 = 1,250
  (18,000 + 6,000)        

Disposal of the whole holding

    Market value on disposal £8,000
Less Cost   £1,250
    Chargeable gain £6,750