Sometimes the holder of employment-related securities will be
offered bonus shares, or replacement shares in a reorganisation. As
for rights issues, there will rarely be a gain because the issue of
bonus or replacement shares will reduce the value of the existing
holding. For replacement shares this value will actually become
nil. Relief for such a reduction in value is provided by
ITEPA03/S421D (3).
Example – bonus shares
If there is a single class of shares and a one-for-one bonus
issue each share will halve in value. In other words, if the share
price were originally £1, each share will now be worth 50p.
The holder will have received an additional share worth 50p from
which id deducted the 50p fall in value of the original share
(£1 down to 50p), leaving a gain of nil.
