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

Mala holds 1,000 ordinary shares in Brightwell plc, which cost her £5,000. Brightwell makes a 1 for 4 bonus issue of the same class of ordinary shares, and Mala receives 250 new shares without paying anything. Which statement describes the capital gains tax treatment?

A same-class bonus issue is not a disposal. The new shares are treated as acquired when the original shares were, and join the same pool. Mala therefore holds 1,250 shares with the unchanged total cost of £5,000, and no gain arises until she sells some shares.

  1. AThere is a part disposal of the original shares, and the gain is the value of the 250 new shares less 20% of the original cost.
  2. BThere is no disposal; Mala's pool becomes 1,250 shares with a total cost of £5,000.Correct
  3. CThere is no disposal; the 250 new shares are treated as acquired on the date of the bonus issue at nil cost, and form a separate pool.
  4. DThere is a disposal at market value of the new shares, taxable at the lower or higher rate depending on her income.

Explanation

A bonus issue of shares of the same class is a reorganisation, not a disposal. The new shares are treated as acquired when the original shares were acquired, so they join the same pool. No extra cost arises, so the pool is 1,250 shares with cost £5,000. Treating them as acquired at nil cost on the issue date is wrong because the original acquisition date is used.

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