Advanced Taxation (UK) · Capital gains tax: gains and losses on the disposal of shares and securities

Bonus Issues, Rights Issues and Share Reorganisations for CGT

Updated 11 October 2026 · Fact-checked

A bonus issue gives free shares and a rights issue sells new shares to existing holders. Neither is a disposal. Bonus shares join the pool at nil cost. Rights shares join it at the price paid. A reorganisation is treated as no disposal, and the old base cost carries over to the new shares.

Understand Bonus Issues, Rights Issues and Share Reorganisations

Start with the idea behind all three events. You still own the same underlying investment. The company has only changed how it is split into shares. So the tax rule is simple: do not tax you on the event itself. Instead, push the old cost into the new holding and tax the gain later, when you actually sell.

A bonus issue gives you extra shares for free, in proportion to what you hold. You pay nothing, so the extra shares add no cost. They are added to the same pool, and the total cost stays the same. Your cost per share falls.

A rights issue lets you buy new shares, usually at a discount, in proportion to your holding. You pay money, so that money is added to the pool cost. The new shares are treated as acquired at the same time as the original holding. They are not a separate purchase for share matching. They join the Section 104 pool with the number of new shares and the amount paid.

A reorganisation covers a share-for-share exchange, a conversion, a takeover paid in shares, or a reconstruction. For an individual, if the conditions for the relief are met, the new shares are treated as the same asset as the old ones. There is no disposal when the exchange happens. The old cost and acquisition date pass to the new shares. If you also receive cash or loan notes, the position is more complex, so read the question carefully. For a takeover for shares and cash, part of the cost is usually matched to the cash received, and that part is a disposal.

A rights issue where you sell your rights nil paid, or take cash instead of shares, can also give a part disposal. Most exam questions, though, simply ask you to take up the rights and then sell some shares.

Key rules to remember

Bonus issue: pool adjustment: New number of shares = old number + bonus shares; pool cost unchanged; Bonus shares cost nil. Cost per share = unchanged total cost ÷ new total shares.
Rights issue: pool adjustment: New number of shares = old number + rights shares; new pool cost = old cost + (rights shares × issue price); The amount paid is added to the pool cost. The shares are not a separate acquisition.
Disposal from the pool: Cost of shares sold = total pool cost × (shares sold ÷ shares in pool); Gain = proceeds − allowable cost of shares sold, less incidental costs of sale.
Reorganisation with no cash: Cost of new shares = cost of old shares; no disposal at the date of exchange; Applies where the reorganisation conditions are met. The acquisition date of the old shares carries over.
CGT rates and annual exempt amount: Lower rate 18%; higher rate 24%; annual exempt amount £3,000; These come from the tax tables given in the exam. Business asset disposal relief is taxed at 14% on the first £1,000,000 lifetime limit.

How to solve Bonus Issues, Rights Issues and Share Reorganisations questions

Use this method for any question on bonus issues, rights issues or reorganisations. Work in a pool table with three columns: number of shares, cost, and any other detail the question gives.

1Identify the event: bonus, rights, reorganisation, or a sale. Decide whether it is a disposal at all. Bonus, rights taken up and pure share-for-share exchanges are not disposals.
2Check the share matching rules for any sale: same day first, then the 30 days after the sale, then the Section 104 pool. Do this before you build the pool.
3Build the Section 104 pool in date order. Start with each purchase: shares and cost.
4Add a bonus issue by adding shares only. Add a rights issue by adding both shares and the cash paid.
5For a reorganisation, carry the old cost across to the new shares. If cash is also received, split the cost between shares and cash using the relative market values, and treat the cash part as a disposal.
6On a sale, remove shares and cost in proportion: cost sold = pool cost × shares sold ÷ pool shares. Carry the balance forward.
7Compute the gain: proceeds less cost sold. Then deduct losses and the annual exempt amount and apply the right rate. State your assumptions.

Quickest way: Pool table in three lines

When to use it: Use this when the question gives a list of purchases, a bonus or rights issue, and then a part sale. It saves time and shows the marker each step.

Draw a table with columns: Shares and Cost (£). Add one row per event in date order.
For a bonus issue, write the new shares in the shares column and leave cost as zero. For a rights issue, write the shares and the cash paid.
Total the pool after each event. On the sale, use the fraction sold ÷ pool shares to remove cost, then write the carried-forward balance.
Cross-check: pool cost after the sale plus cost sold must equal pool cost before the sale.

Common mistakes in Bonus Issues, Rights Issues and Share Reorganisations

Treating a bonus issue as a separate purchase at market value.
Students see new shares and assume they have a cost.
Fix: Bonus shares are free. Add the shares only. Total pool cost does not change.
Forgetting to add the rights issue money to the pool cost.
Students add only the new shares and think of it as a bonus issue.
Fix: Add both the shares and the cash paid. Check that pool cost rises by shares × issue price.
Treating a share-for-share exchange as a disposal when no cash is received.
The old shares disappear, so it feels like a sale.
Fix: If the conditions are met, there is no disposal. Carry the old cost and date over to the new shares.
Ignoring same-day and 30-day matching before using the pool.
Students jump straight to the pool because the question is about adjustments.
Fix: Always match the sale to same-day and later 30-day purchases first. Only the balance comes from the pool.
Using the wrong fraction when part of the holding is sold.
Students use the original shares instead of the enlarged pool.
Fix: Use shares sold ÷ total pool shares at the date of sale, after all bonus and rights shares.
Ignoring the cash element in a takeover for shares and cash.
Students focus on the share-for-share relief and forget the cash is a part disposal.
Fix: Split the old cost using the relative market values of the shares and cash received. Tax the cash part as a disposal.

Worked examples

Example 1

Tara bought 4,000 shares in Mint plc for £10,000 in 2016. In 2019 she bought 2,000 more for £7,000. In 2022 Mint plc made a 1 for 3 bonus issue. In June 2025 she sold 3,000 shares for £15,000. There are no other costs. Compute her gain, ignoring the annual exempt amount.

Show the solution

Build the pool. Purchase 1: 4,000 shares, cost £10,000.
Purchase 2: 2,000 shares, cost £7,000. Pool is 6,000 shares, cost £17,000.
Bonus 1 for 3: 6,000 ÷ 3 = 2,000 new shares at nil cost. Pool is 8,000 shares, cost £17,000.
Sale of 3,000 shares. Cost sold = £17,000 × 3,000 ÷ 8,000 = £6,375.
Gain = £15,000 − £6,375 = £8,625.
Balance carried forward: 5,000 shares, cost £10,625.

Answer: The chargeable gain is £8,625. The pool carried forward is 5,000 shares with cost £10,625.

Example 2

Raj bought 3,000 shares in Delta plc for £9,000 in 2018. In 2021 Delta plc made a 1 for 2 rights issue at £4 per share and Raj took up all his rights. In May 2025 he sold 2,000 shares for £11,000. Compute his gain, ignoring the annual exempt amount.

Show the solution

Opening pool: 3,000 shares, cost £9,000.
Rights issue 1 for 2: 3,000 ÷ 2 = 1,500 new shares. Cost = 1,500 × £4 = £6,000.
Pool after rights: 4,500 shares, cost £15,000.
Sale of 2,000 shares. Cost sold = £15,000 × 2,000 ÷ 4,500 = £6,667 (to the nearest £).
Gain = £11,000 − £6,667 = £4,333.
Balance carried forward: 2,500 shares, cost £8,333.

Answer: The chargeable gain is £4,333. The pool carried forward is 2,500 shares with cost £8,333.

Exam tips

Draw the pool table first, even for a short requirement. Marks are given for the working, not just the final gain.
State clearly that bonus and rights issues are not disposals and that the shares are added to the existing pool. This is an easy mark.
Check the dates for same-day and 30-day matching before you use the pool. Examiners often place a purchase just after a sale.
In a takeover question, read whether cash or loan notes are received. If so, show the cost split and the part disposal.
Round to the nearest £ as the exam instructions say, and show all workings.

Practice questions from Capital gains tax: gains and losses on the disposal of shares and securities

Bonus Issues, Rights Issues and Share Reorganisations in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Bonus Issues, Rights Issues and Share Reorganisations: frequently asked questions

What is the difference between a bonus issue and a rights issue for CGT?

A bonus issue gives free shares, so only the number of shares in the pool rises and the cost stays the same. A rights issue means you pay for new shares, so both the number of shares and the pool cost rise. Neither is a disposal if you take up the shares.

How do I treat a rights issue in the Section 104 pool?

Add the new shares and the cash you paid to the pool. The new shares are not matched as a separate purchase. When you later sell, use the enlarged pool to work out the cost of the shares sold.

Is a share reorganisation or takeover a disposal for CGT?

Not if you receive only new shares and the conditions for the relief are met. The old cost and acquisition date pass to the new shares. If you also receive cash, part of the old cost is matched to the cash and that part is a disposal.

What if I sell my rights instead of taking up the shares?

That is usually a part disposal of the original holding. You work out the cost using the relative values of the rights and the shares, unless the sum is small. Read the question for any instruction on the small amount rule.