Changes in shareholdings: bonus issues
Bonus issues are normally straightforward as you simply compare the holding at the dateof death with the holding at the date of sale, IHTA84/S183. This page includes examples ofa straightforward bonus issue (Example 1) and one where the bonus issue is of a differentclass 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 1,500shares. 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 simplycompare the gross sale proceeds for the 750 shares with the date of death value of halfthe original holding, £1,500.
Note – In strictness the formula (IHTM34183) should beused to calculate the date of death value in (b). But in straightforward cases where abonus issue is the only event between the date of death and the date of sale for aparticular holding it is sufficient to simply compare the gross sale proceeds with thecorresponding part of the value at death.
For example, if the shares at (b) were sold for £1.50p each the gross proceeds for the750 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 dateof death value has to be apportioned between the two new holdings.
The deceased died on 23 December 1986. At the date of death the deceased had a holdingof 1,500 deferred ordinary shares in Suter plc, valued at 198p each. The total value ofthe holding was £2,970.
The shares went “Ex-Cap” on 1 June 1987: 1 ordinary share for every 5 deferredordinary shares.
Step 1 – Apportion the date of death value of £2,970 between deferred ordinary shareand 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 ofshare with the gross sale proceeds for those shares. For example,
(a) if all the ordinary shares are sold within 12 months – simply compare the deathvalue 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 valueusing the formula (IHTM34183) in IHTA84/S183 (5) before youcompare the value with the gross sale proceeds.