Taxes Consolidation Act 1997 section 131

Bonus issues following repayment of share capital

Section 131 deals with the tax treatment of bonus shares issued by a company following a repayment of share capital, treating such issues as distributions in certain circumstances to prevent the tax-free extraction of profits.

• Where a company repays share capital and subsequently issues bonus shares (shares paid up without new consideration), the bonus issue is treated as a distribution up to the amount of the share capital repaid.
• The distribution amount is the nominal value of the bonus shares issued, less any new consideration received and less any amounts already treated as distributions under this provision in respect of the same repayment.
• The provision does not apply where the repaid capital consisted of fully paid preference shares that either existed on 27 November 1975 or were issued after that date wholly for new consideration not derived from ordinary shares, and remained fully paid preference shares until repayment.
• For non-close companies, the provision does not apply where the bonus issue consists of non-redeemable share capital and takes place more than 10 years after the repayment of share capital.