Corporation Tax Act 2010 section 1026

Distributions following a bonus issue

Section 1026 deals with how distributions made by a company are treated for tax purposes when they follow an earlier issue of bonus shares — that is, shares paid up without the company receiving any new consideration in return.

• When a company has issued bonus share capital (shares paid up without new consideration) and that issue was not itself treated as a distribution, any subsequent distributions on those bonus shares are not treated as repayments of share capital.
• An exception applies after ten years: if more than ten years have passed since the bonus issue, and the shares are not redeemable, distributions on them can once again be treated as repayments of share capital — unless the company is a "relevant company" within the meaning of section 739 (broadly, certain unlisted companies).
• All shares of the same class are regarded as representing the same share capital, and where shares are issued in respect of, converted into, or exchanged for other shares, they are all treated as representing the same share capital.
• The total amount caught by this rule is subject to a cap set out in section 1027, and the section should also be read alongside section 1049(3)(b) concerning stock dividends.