US spin-offs and UK CGT: how do you split your cost?

By Jason Bull, a part-time trader who writes about UK capital gains tax for people doing their own returns. 10 October 20269 min readCGT guides

If a spin-off counts as a UK reorganisation, your pool cost is split by the two holdings' market values on the first day both are quoted. If it does not, the new shares can be taxed as a dividend, and they cost their market value on the day.

3M and GE told holders their 2024 spin-offs were meant to be tax-free for US federal income tax (3M, GE). Each also published a cost split on the US Form 8937. Neither decides the UK question.

The UK test a US spin-off has to pass

The UK's own demerger relief needs each company to be "UK resident or resident in a member State". A company resident in the US is neither. So to count as a reorganisation, a US spin-off has to be a scheme of reconstruction under section 136. Schedule 5AA sets the conditions:

the new company issues ordinary shares to the old company's holders, in proportion to their holdings, and not to anyone else
every holder of the class has the same entitlement to them
the old business, or "substantially the whole" of it, is carried on by the companies afterwards

An arrangement under company law, UK or foreign, that moves no business elsewhere can replace the third.

HMRC's manual adds the point the first condition turns on: "It is important that the new shares are issued directly to the shareholders in the original company. This condition will not be met otherwise." In our reading, a spin-off where the parent hands out shares it already owns does not meet it.

If it is not a reorganisation

Then the new shares are a distribution to you from the US company. A dividend of a non-UK resident company is taxed as income, unless it is "of a capital nature". That turns on the law of the place where the company is incorporated. HMRC ask "whether or not the 'corpus of the asset' is left intact".

HMRC's 2026 consultation on distributions says payments "made under a dividend mechanism will be income dividends on first instance". It calls the capital case "the extremely unusual situation". That is the trap. Treat a spin-off as tax-free because the US does, and a dividend can go unreported.

On the income route the shares are foreign dividend income, usually reported on a Self Assessment return. You acquire them "by way of distribution from a company", so their cost is their market value. In our reading, that same value is the dividend. How UK dividend tax works has the rates.

If the distribution is capital instead, it is a disposal of an interest in your old shares on the day, unless it is small. HMRC's worked example gives shares received this way their market value as cost.

Only a scheme of reconstruction splits your existing cost; on the other two routes the new shares cost their market value.

Splitting the cost on a reorganisation

Unlike a stock split, a spin-off leaves you two holdings, so the cost is divided between them.

HS285 gives the formula: your cost times the value of one holding, divided by the value of both. For listed shares you value them "on the first day when values are listed". The rule applies if one class is listed on a recognised stock exchange within 3 months. The New York Stock Exchange and Nasdaq are recognised. HMRC's manual says that first day cannot predate the prices reflecting the spin-off, which is usually the "ex day".

Both prices are in dollars on the same day, so the exchange rate cancels out of the fraction.

3M's Form 8937 uses closing prices on 1 April 2024, the day the Solventum spin-off took effect. GE's uses opening prices on 2 April 2024 for GE Vernova. Neither s130 nor HS285 says which price of the day to take for a US listing. In practice, pick one measure and use it for both holdings. Each spin-off gave one new share for every four old ones (3M, GE).

Say you held 400 shares with a pool cost of £10,000. The table shows the reorganisation arithmetic only. We found no HMRC page saying which route either spin-off took.

Spin-off and prices	400 old shares ($)	100 new shares ($)	Old shares keep (£)	New shares take (£)
3M to Solventum, closing prices on 1 April 2024	400 × 94.02 = 37,608	100 × 69.10 = 6,910	8,447.82	1,552.18
GE to GE Vernova, opening prices on 2 April 2024	400 × 140.53 = 56,212	100 × 142.85 = 14,285	7,973.67	2,026.33

Source: prices from 3M's Form 8937 and GE's Form 8937 attachment; the method from HS285 (2026) and TCGA 1992 s130. Pool cost £10,000 on 400 shares.

For 3M that is 84.48% of the cost kept and 15.52% moved. The new shares count as acquired when your old shares were, in a separate Section 104 holding. So the same-day and 30-day rules do not apply to them.

The same holding on the other two routes

The other routes need sterling. HMRC do not prescribe a rate, but expect a reasonable and consistent method. At HMRC's own monthly rate for April 2024, $1.2693 to the pound, the 100 Solventum shares were worth £5,443.95 and the 400 3M shares £29,628.93. Our exchange rates guide covers the choice of rate.

Route	Taxed for 2023/24	3M pool after (£)	Solventum cost (£)
1. Reorganisation	Nothing	8,447.82	1,552.18
2. Dividend	£5,443.95 of dividend income, in our reading	10,000.00	5,443.95
3. Capital distribution	£3,891.77 of gain	8,447.82	5,443.95

Source: TCGA 1992 s127, s17 and s122; ITTOIA 2005 s402; CG57800; HMRC's exchange rates for April 2024. Pool cost £10,000 on 400 3M shares.

On the capital route the cost set against the distribution is A / (A + B) of the pool: £5,443.95 ÷ (£5,443.95 + £29,628.93) × £10,000, which is £1,552.18. That leaves a gain of £3,891.77. It is not small, being over £3,000 and 15.52% of the holding (CG57835). It falls in 2023/24, because the tax year runs from 6 April to 5 April.

The route matters when you sell. Sell the 100 Solventum shares in 2026/27 and their cost is £1,552.18 on the first route, but £5,443.95 on the other two. Use the wrong one and your gain is out by £3,891.77. At 24% that is £934.02 of tax.

Neither company issued part shares: the fractions were sold together and the cash paid out (3M, GE). Hold 402 3M shares and 100 Solventum shares arrived, with cash for half a share. At the $69.10 close, that half was worth $34.55.

On a reorganisation, cash like this is a disposal of an interest in your original shares. HMRC's manual says it can still qualify for the small treatment. HMRC accept an amount as small if it is £3,000 or less, or 5% or less of the value of the shares. Then it is not a disposal, and the cash comes off your cost instead.

Why your US cost basis is not your UK cost

A Form 8937 is a US tax form. 3M presents its prices as one possible approach. GE tells holders who bought at different times to "calculate their tax basis in each block". The UK has no blocks. All your shares of one class are a single asset, and each purchase is in pounds at its own date. So your broker's dollar cost basis for each lot will not match your UK pool, even on the reorganisation route. Our 84.48% matches 3M's figure only because both use the same prices. Why a US broker's gain figures don't work on a UK return covers the rest.

Entering a spin-off in TaxBull

The corporate actions card has a Spin-off entry for the reorganisation route. Give it the date, both tickers, the number of new shares and the percentage of cost the old shares keep: 84.4782 for 3M. TaxBull moves the rest of your pooled cost to the new shares on that date. Without the percentage, the new shares stand at nil cost and a warning says so.

Enter cash for a fraction as a Return of capital on the old ticker, on the same date. If it is small, TaxBull takes it off the pool before the split. On the other routes, add the new shares with "+ Add a transaction" at their market value. For the capital route, a Return of capital with the three values the card asks for gives the part disposal. TaxBull does not decide the route or record the dividend.

Before you enter anything, find out which route your spin-off took. Look for a UK tax section in the company's information statement or its notes for shareholders. If there is none, take the distribution terms and the two first-day prices to a tax adviser.

TaxBull's capital gains tax calculator for shares reads a broker export and builds your Section 104 pool in pounds, so the cost you split is your UK cost.

Sources

This is general information, not tax advice. The figures here are for 2026/27. Check gov.uk or ask a tax professional about the year you are filing.

Work out your own capital gains tax from your broker exports.

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