Income Tax (Trading and Other Income) Act 2005 section 410A

Conversion etc. of bonus share capital

Section 410A provides an exemption from the stock dividend income rules where bonus shares are converted into, or exchanged for, shares of a different class in the same company.

• The section applies when bonus share capital (as defined in section 410(1)(b)) is converted into or exchanged for shares of a different class in the same company.
• Any new shares issued by the company as part of that conversion or exchange are not treated as giving rise to stock dividend income under section 410.
• The exemption only applies where the new shares are issued in consideration for the cancellation, extinguishment, or acquisition by the company of the original bonus share capital.
• The practical effect is that a straightforward reclassification of bonus shares does not trigger a further income tax charge as a stock dividend.