Commentary

I5.1024 Distributions received by trustees on a demerger—CGT

IHT, trusts and estates

I5.1024 Distributions received by trustees on a demerger—CGT

I5.1024 Distributions received by trustees on a demerger—CGT

CGT treatment on demergers—overview

A demerger takes place when a company (A) transfers either part of its trading activities or shares in a 75% subsidiary (S) to a separate company (B) not belonging to the same group as A1.

It may be either:

  1.  

    (a)     a direct demerger, where A distributes to its members shares in B, or

  2.  

    (b)     an indirect demerger, where the trading activities or the shares in S are transferred to B in exchange for the issue by B of its own shares to the members of A2

Where the demerger takes place on or after 1 October 2013, the receipt of B shares on a tax exempt distribution, whether in a direct or indirect demerger, is treated as a receipt of capital3 for trustees of any trust (see I5.1006).

CGT treatment of demergers from 1 October 2013

On a demerger, all trustees are treated in the same way as individuals for CGT purposes4.

The demerged shares are received as capital (see I5.1006) and belong, in the first instance, to the trustees even if they are obliged to distribute them or their cash equivalent.

There is no immediate chargeable gain or allowable capital loss.

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