What does section 127 of the Taxation of Chargeable Gains Act 1992 do?

Section 127 provides that when a company reorganises its share capital, the original shares and the resulting new holding are treated as the same asset for capital gains tax purposes. No disposal of the original shares or acquisition of the new holding is deemed to occur, deferring any gain or loss until a subsequent disposal to a third party.

Does a bonus share issue trigger a capital gains tax charge under United Kingdom law?

No. Under section 127 of the Taxation of Chargeable Gains Act 1992, a bonus share issue is a share reorganisation. The new shares are treated as the same asset as the original shares. The shareholder's original acquisition date and cost carry forward to the enlarged holding, so no immediate capital gains tax charge arises.

How is the cost base calculated after a share reorganisation under section 127?

The new holding inherits the original shares' acquisition cost and date. When the shareholder eventually disposes of the new holding, the gain or loss is calculated by reference to the original cost. If additional consideration was given or received, or the new holding is composite, sections 128 to 130 require appropriate adjustments or apportionment.

When do sections 128 to 130 modify the treatment under section 127?

Sections 128 to 130 apply where the shareholder gives or receives additional consideration as part of the reorganisation, or where the new holding consists of more than one class of shares or securities. In such cases, the original cost base must be apportioned or adjusted, modifying the straightforward single-asset treatment provided by section 127.

Taxation of Chargeable Gains Act 1992 section 127

Equation of original shares and new holding

Section 127 establishes that when a company reorganises its share capital, the original shares and the resulting new holding are treated as the same asset for capital gains tax purposes, so that no disposal or acquisition is deemed to occur.

A share reorganisation does not trigger a capital gains tax disposal of the original shares or an acquisition of the new holding.
The original shares and the new holding are treated as a single, continuing asset.
The new holding inherits the acquisition date and cost of the original shares.
This treatment is subject to modifications where additional consideration is given or received, or where the new holding is composite in nature (sections 128 to 130).

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