Scrip, Bonus & Capitalisation Issues
A Bonus Issue, which is sometimes referred to as "Scrip Issue" or "Capitalisation Issue", is effectively a free issue of shares - paid for by the company issuing the shares out of capital reserves. (Please note that a Scrip Issue should not be confused with a Scrip Dividend).
The general purpose of a Bonus Issue is to increase the liquidity of the company's shares in the market - by increasing the number of shares in circulation, which has the effect of reducing the share price.
The term 'Bonus Issue' is generally used to describe what is technically a capitalisation of reserves. The company, in effect, issues free shares paid for out of its accumulated profits (reserves).
For example, let us look at what happens if company ABC plc makes a 1 for 4 Bonus issue, then:
Let us say you purchased 1000 shares in ABC plc at 100p per share. For Capital Gains tax purposes, the Bonus shares are treated as the same asset and acquired at the same time as your existing ABC plc shares. There is no immediate liability to CGT when you receive the bonus shares, but there could be a capital gains tax liability when you come to dispose of the shares. In order to determine your capital gains when you come to make a full or part disposal of your ABC plc holding, you need to adjust the base cost of your shares, reducing the cost per share as follows:
Before Bonus Issue you own:
After Bonus Issue:
When you make a full or part disposal of your ABC plc shares, it is the new reduced base cost that you use in your Capital Gain calculations.
When managing Bonus Issues you are typically told the ratio of old to new shares and you will know the number of new shares you receive as a result of a Bonus Issue.
Firstly, make sure the original share purchase is listed in your timetotrade share portfolio. As you can see in the screen shot below, in this example we purchased 1000 shares in ABC plc on 1 Jan uary 2009. For the purposes of illustration only, we will assume that no commission or stamp duty was paid.
To add the bonus issue shares, click on the "share reorganisation" button as illustrated above. This will take you through to the Share Reorganisation page.
Firstly select the date that the new Bonus shares were issued. In this example, I will say that the bonus ABC plc shares were issued on 1st June 2009. Select the date from the calendar or type "1 Jun 2009" into the date field. When finished, click the "submit" button.
Now we need to select the type of share reorganisation. In this instance select "Bonus Issue" from the drop down menu. (You would select "Bonus Issue" for "Capitalisation Issues" and "Scrip Issues" too). Once you have selected "Bonus Issue", click on the "submit" button.
We're now nearly done. Next stage, we need to complete the fields shown below.
Symbol = ABC (in this instance the bonus shares issued were of the same type, class and use the same symbol/epic code as the existing holding. If you were issued with a different class of share or shares in a different company, you would input the epic code for new shares here instead).
Once finished, click on the "submit" button. You will now see a summary of the details input. Check the details are correct, and click on the blue "click here to return to ledgers" to take you back to your share portfolio page.
The bonus issue has now been correctly accounted for within your timetotrade accounts.