Taxes Consolidation Act 1997 section 137

Disallowance of reliefs in respect of bonus issues

Section 137 restricts the use of tax exemptions, loss relief, and interest deductions in respect of certain bonus issues treated as distributions, while preserving relief for amounts representing a normal return on investment.

• A "bonus issue" includes the redemption of bonus shares, certain interest treated as a distribution, a bonus issue following repayment of share capital, and a repayment of share capital following a bonus issue.
• Tax exemptions, loss set-offs, and interest deductions cannot be used to recover tax in respect of a bonus issue, and a bonus issue is not treated as franked investment income.
• These restrictions do not apply to the portion of a bonus issue that represents a normal return on the recipient's investment in the underlying shares or securities.
• For the purposes of determining a normal return, the recipient is treated as having acquired the shares at market value, and regard is had to the holding period and any dividends received during that period.