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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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Share Loss Relief: individual and corporate claimants: individual claimants: more complex cases: bonus shares

This is the first of a group of complicating factors in which a shareholder comes to own shares or other assets by virtue of their already owning shares in the issuing company (others are dealt with at VCM75340+). Subject to certain conditions being met, it may be that the new shares can also give rise to Share Loss Relief when disposed of and if that is so then questions will arise as to the amount of loss properly attributable to them.

When a company makes a bonus issue it issues new shares to its investors in proportion to their existing holdings of a particular class of share. The shareholder does not give any new consideration for the new shares, which may be of the same class as those in respect of which they are issued or of a different class. Because no consideration is given, the shareholder has not ‘subscribed for’ the new shares in the normal way, and so without a special rule any loss on those new shares cannot be eligible for Share Loss Relief in any circumstances, even when the shares in respect of which they were issued were themselves subscribed for.

ITA07/S135(4) addresses this point. Where the bonus shares are corresponding bonus shares and the shares in respect of which they were issued were subscribed for (or are treated as having been subscribed for) by the shareholder, then the shareholder is treated as having subscribed for the bonus shares also. The meaning of corresponding bonus shares is given at section 151(1): they are bonus shares which are issued in respect of existing shares and are in the same company and of the same class and carry the same rights as those existing shares. See VCM71020 for guidance.

Notice that section 135(4) only determines whether an individual is treated as having subscribed for the bonus shares. It is silent on the other conditions necessary for those shares to be qualifying shares, principally that they be shares in a qualifying trading company. You will need to consider this question separately. Notice also that there is no provision in section 135 analogous to TCGA92/S127: for Share Loss Relief purposes the corresponding bonus shares are not treated as having been acquired when the original shares were acquired.

Section 136 ITA 2007 is not in point in relation to bonus shares. This is because one of the conditions for section 136 to apply is that the new shares disposed of be identified with other shares previously held by the claimant. This means that the other shares are no longer held. For detailed guidance on ITA07/S136, see VCM75390.

Corresponding bonus shares are likely to be ‘pooled’ with the shares in respect of which they were issued for TCGA purposes, but as both will be capable of being qualifying shares for Share Loss Relief purposes this ‘pool’ will not be a mixed holding unless it also contains other shares which are not capable of being qualifying shares (see VCM75400+ for guidance on mixed holdings).