Bonus issues are normally straightforward as you simply compare
the holding at the date of death with the holding at the date of
sale, IHTA84/S183. This page includes examples of a straightforward
bonus issue (Example 1) and one where the bonus issue is of a
different class of shares (Example 2).
There are separate rules that apply if a bonus issue was
renounced
(IHTM34186).
At the date of death the deceased owned 1,000 qualifying shares,
valued at £3,000. Shortly after death there was a 1 for 2
bonus issue, bringing the revised holding to 1,500 shares. The date
of death value is still £3,000.
(a) If all the shares were sold within 12 months – you
compare the death value of £3,000 with the gross proceeds from
the sale of 1,500 shares
(b) if part of the holding, say 750 shares, are sold within
the 12 months you simply compare the gross sale proceeds for the
750 shares with the date of death value of half the original
holding, £1,500.
Note – In strictness the formula (
IHTM34183) should be used to calculate
the date of death value in (b). But in straightforward cases where
a bonus issue is the only event between the date of death and the
date of sale for a particular holding it is sufficient to simply
compare the gross sale proceeds with the corresponding part of the
value at death.
For example, if the shares at (b) were sold for £1.50p
each the gross proceeds for the 750 shares sold would be
£1,125 and the loss would be £1,500 - £1,125 =
£375.
Using the formula in IHTA84/S183 (5) the date of death value
is
Vs(H – S) = 1,125 (3,000 – Nil) = £1,500
Vs + Vr 1,125 +1,125
The loss on sale would then be 1,500 – 1,125 = £375
If the bonus issue if of a different class of shares to those originally held the date of death value has to be apportioned between the two new holdings.
Example 2
The deceased died on 23 December 1986. At the date of death the
deceased had a holding of 1,500 deferred ordinary shares in Suter
plc, valued at 198p each. The total value of the holding was
£2,970.
The shares went “Ex-Cap” on 1 June 1987: 1
ordinary share for every 5 deferred ordinary shares.
Step 1 – Apportion the date of death value of
£2,970 between deferred ordinary share and ordinary shares.
Using Extel, the adjustment factors in Extel for Suter plc
are
deferred ordinary shares 0.83333
ordinary shares 0.16667
The date of death value is apportioned as follows
deferred ordinary shares £2,970 x 0.83333 = £2,475
ordinary shares £2,970 x 0.16667 = £495
Step 2 – You need to compare the adjusted date of death
value for that type of share with the gross sale proceeds for those
shares. For example,
(a) if all the ordinary shares are sold within 12 months
– simply compare the death value of £495 with the gross
sale proceeds of the ordinary shares
(b) if a part sale occurs, you will need to further
appropriation the date of death value using the formula (
IHTM34183) in IHTA84/S183 (5) before
you compare the value with the gross sale proceeds.
