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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Business Expansion Scheme: share reorganisation rules (1): bonus issues and mixed holdings

  • bonus issues
  • mixed holdings, that is where the taxpayer holds shares in the same company some of which have and some of which have not attracted BES relief
  • share exchanges see CG56939
  • rights issues see CG56946.

Bonus issues

If a company makes an issue of shares to its shareholders for no payment this is called a bonus issue. As long as the issue is made in respect of and in proportion to the existing shareholding TCGA92/S127 will apply to treat all the shares as though they were the same asset. For further instructions on bonus issues see CG50290.

If the original shares attracted BES relief ICTA88/S299 (5) (as it was before FA94) provides that you treat the bonus issue shares as though they also attracted BES relief. Therefore there is no need to make any distinction between the original shares and the bonus issue shares when dealing with a disposal or part disposal. If all the shares are sold you should treat all the shares as having had relief. If there is a part disposal you should treat a corresponding proportion of the shares as having had relief.

Mixed holdings

A taxpayer may have a holding of ordinary shares in a company in respect of which relief has been given and not withdrawn on some of the shares but not on others. If there is a bonus issue or rights issue in respect of these shares the share reorganisation rules apply to each holding separately, TCGA92/S150(6). Therefore, the new shares are allocated to each separate holding and there is no question of shares which have attracted relief which has not been withdrawn and other shares intermingling. If the rights issue occurred after 18 March 1986 the original shares and the rights issue shares may also be treated as separate holdings, for further details see CG56946.