CTM15450 - Distributions: general: bonus issues of securities or redeemable shares
ICTA88/S209 (2)(c) & ICTA88/S14 (1)
A company may make a bonus issue of securities or redeemable shares without receiving new consideration to an equivalent value in return.
In these circumstances, that part of the issue that is not for new consideration is treated as a distribution. The exception is where the bonus issue is a stock dividend within ICTA88/S249 (4), (5) or (6).
A distribution, which is only a distribution because of ICTA88/S209 (2)(c) is a non-qualifying distribution and, where the distribution was made prior to 6 April 1999, no ACT was due.
The distribution is non-qualifying because the issue of such securities or shares does not, in itself, transfer value from the company. It is the redemption etc of such securities or shares that results in the transfer of value. On redemption etc.:
- ICTA88/S211 (1) will apply regarding shares (see CTM15400), and
- ICTA88/S209 (2)(d) or (e) will apply regarding securities (see CTM15500).
A bonus issue of non-redeemable shares will not normally give rise to a distribution unless either ICTA88/S211 or ICTA88/S210 apply (see CTM15400 and CTM15420), see CIR v Blott 8TC101 and CIR v Wright 11TC181.
Amount of distribution, ICTA88/S209 (8)
The amount or value of any distribution in the form of a bonus issue is, for redeemable share capital, the excess of:
- the nominal amount of the share capital issued, and
- any premium payable, whether on redemption, in a winding up or in any other circumstances,
over any new consideration received by the issuing company.
The amount or value of any distribution in the form of a bonus issue is, for any security, the excess of:
- the principal amount secured, and
- any premium payable at maturity, in a winding-up or in any other circumstances,
over any new consideration received.
Accordingly, a rights issue of securities or redeemable share capital does not give rise to a distribution unless it contains a bonus element. The extent of the bonus element is the amount of the excess referred to above.
For the tax treatment of a non-qualifying distribution in the recipient's hands see (AP3078).