Corporation Tax Act 2010 section 1023

Exceptions to section 1022(3)

Section 1023 sets out the circumstances in which a bonus issue of shares following a repayment of share capital will not be treated as a distribution under section 1022(3).

• A bonus issue made more than 10 years after the repayment of share capital is not treated as a distribution, provided the new shares are not redeemable — but this time-based exception does not help companies that are not included in the official UK list (as defined in section 739).
• A bonus issue is also not treated as a distribution where the repaid share capital consisted of fully paid preference shares that were originally issued as fully paid preference shares, were issued wholly for new consideration not derived from ordinary shares, and retained their status as fully paid preference shares throughout their life until repayment.
• Consideration is treated as derived from ordinary shares only if it involves the surrender, transfer or cancellation of ordinary shares, the variation of rights in ordinary shares, or is derived from a repayment of share capital paid in respect of ordinary shares — regardless of whether those ordinary shares are in the same company or another company.
• Preference shares are defined as shares carrying only fixed-rate dividends and having dividend and capital rights comparable to fixed-dividend shares on the official UK list; ordinary shares are all shares that are not preference shares.