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HMRC internal manual

Capital Gains Manual

Definitions: issue of shares: bonus or scrip issues

A bonus issue is one in which the company issues shares or securities free to all its shareholders or all the holders of a particular class of share in proportion to their holdings of shares in respect of which the bonus shares are issued. For example, a company may issue two free preference shares for every ordinary share held. A public company will usually make a bonus issue by issuing a renounceable letter of allotment, see CG50293. Where a company holds some of its own shares in treasury (CG50209) it has a choice as to whether it issues bonus shares in respect of the shares held in treasury as well as to the other holders of shares of the class in question. If it does issue bonus shares in respect of shares held in treasury, those bonus shares are also shares held in treasury, and their rights are suspended while they are held in treasury. FA03/S195(5) provides that bonus shares which the company issues to itself in respect of shares held in treasury are treated for most tax purposes as though they had never been issued. But this does not prevent the bonus issue qualifying as a share reorganisation for the purposes of TCGA92/S127 to TCGA92/S131, see CG51750.

Bonus issues are also called scrip or capitalisation issues. This is because part of the company’s undistributed reserves or profits are capitalised and used to pay up the issue of the shares.