Bonus Shares in lieu of dividends

[Bouleversee]

What is the position as regards tax if bonus shares are issued in the place of a dividend? Does one have to declare anything in the year the issue is effected. If not, what happens when you come to sell? How does one account for the cost of the extra shares in the cgt computation?

[dealtn]

What is the position as regards tax if bonus shares are issued in the place of a dividend? Does one have to declare anything in the year the issue is effected. If not, what happens when you come to sell? How does one account for the cost of the extra shares in the cgt computation?

Care is needed to ensure they are in lieu of income, or resulting from a return of capital, or a reorganisation.

https://www.gov.uk/hmrc-internal-manual ... 20return).

So on a "practical" board you might wish to share which particular company and dividend you are referring to.

In general they are "income" and taxable as such, even if the distribution isn't in "cash". For CGT purposes they are created at the price received. In other words treated as a new purchase in the same way as if the dividend was paid as cash and you (rather than the company) chose to spend that income buying new shares at that price.

[Alaric]

In general they are "income" and taxable as such, even if the distribution isn't in "cash". For CGT purposes they are created at the price received. In other words treated as a new purchase in the same way as if the dividend was paid as cash and you (rather than the company) chose to spend that income buying new shares at that price.

A headache for record keeping. You have to assume that you will get notified of the amount of notional income each tax year and then keep a note of it to add it to the cumulative purchase cost. It's a very similar problem to the record keeping when you have OEICs as accumulation units.

If held through a Broker, you have to hope they include the notional income on the annual statement (CT61). If held directly, it's notifications from the registrar that has to be kept track of,

[Bouleversee]

Thanks, both. Will get back to you shortly.

[Bouleversee]

It's all a bit complicated. It's about a bonus share issue by Bloomsbury Publishing in lieu of a dividend they would have otherwise declared. I held Bloomsbury shares in a dealing account with IWeb and recently asked them to bed and ISA them. There were some slip ups over that, for which I understand I am to be compensated, but that's for another board perhaps. It wasn't till I came to enter the deals on the records I keep on my computer that I twigged that the number of shares sold was larger than the number shown on my records, which was from a single purchase. So I checked the dealing history and couldn't find anything about a top up since the original purchase and then the dividend history and found that the no. of shares on which the dividend was paid had gone up from 2424 in Dec. 2019 to 2501 (the no. which was recently sold) and likewise for subsequent divs.

I then looked for corporate actions and could only find one in the history, in Sept.2020 (no date on the printout) reporting a" dividend by way of a Bonus issue" had been credited to my account. Doesn't say how much the div. would have been or give the effective date, just the entitlement date of 30 July; I see BBY's website says the bonus shares were issued on 28.8.20 in lieu of and with a value equivalent to, its proposed final cash dividend of 6.89p per share, which for the extra 77 shares would only amount to £5.30 so can't be the December one on the tax cert. There was no record of any corporate action notice warning that this was going to happen and when I checked the dividends on the tax certificate provided by Iweb it showed a dividend of £0.01280000 had been paid on 2501 (i.e. including the bonus issue) shares in BMY (£32.01) on 16.12.20 so that is what I declared for them for 20-21. I see it was an interim dividend, nothing to do with the bonus issue.

I have no recollection of receiving any notification about this bonus issue, otherwise it would have been entered on my records and I would have looked into the tax question at the time. I suppose an email from IWeb could have gone into my spam folder but that doesn't now go back that far; a search for IWeb emails didn't come up with any corporate action notifications during this period. Anyway, so far as I am concerned, I may have failed to declare £5.30 if Dealth is correct but, having effectively sold the shares I suppose that could be remedied by knocking off the same sum from the cost of the shares when I do my tax return for 21-22 if I can ever find to do it. As I no longer hold BBY shares outside an ISA, I don't see how Alaric's comment could apply.

I should be interested to know whether any other Lemons hold BBY directly and if so how you handled the situation. It's utterly ridiculous that one should have to spend so much time on sorting out what should be a simple matter. I couldn't find anything about tax on the company's website, possibly because it is too long ago now. I'd love to know what the purpose of the exercise was.

I'll try to find time to study the link dealth kindly provided but what he has said doesn't atm make a lot of sense to me either since the shares cost almost £4.50 each at present.

[GPhelan]

This was interesting because I have received unexpected payments in the recent past and so spent a few minutes seeing if your BMY experience is really as undocumented as you describe.

I looked at the Bloomsbury Annual Report and Accounts 2021, the most recent available and see this bonus issue described in the first footnote at the bottom of page 4 of the PDF / Page 2 of Document:
"
For the year ended 29 February 2020, Bloomsbury had intended to declare a final dividend for the year of 6.89 pence per share. This would have resulted in a total dividend for the year of 8.17 pence per share. Bloomsbury decided in light of coronavirus to conserve cash and therefore made a bonus issue to Shareholders in lieu of, and with a value equivalent to, it’s proposed final cash dividend of 6.89 pence per ordinary share. The dividend for the year ended 28 February 2021 includes a special dividend of 9.78p pence per share in recognition of the boom in trading this year.
"
The word Bonus appears over 200 times in the report, but the next one of interest is on page 65/63:
"
The Board further determined that it would be appropriate to cancel the final cash dividend for 2019/2020. Major Shareholders were consulted in respect of a proposal for the Company to instead settle the dividend by way of a bonus issue, which it did following Shareholder approval at the 2020 AGM.
"
Then again on page 91/89 footnote 1 (under the dividend summary) repeats most of the above, but with further information on qualifying dates.
"
Bloomsbury had intended to declare a final dividend for the year ended 29 February 2020 of 6.89 pence per share. This would have resulted in a total dividend for the year of 8.17 pence per share, up 3% on the previous year. Bloomsbury decided, in light of the coronavirus crisis, to conserve cash and did not pay a cash dividend. Instead, as approved by Shareholders at the 2020 AGM, the dividend was settled through the issuance of new Ordinary shares by way of a bonus issue to Shareholders, with a value equivalent to the proposed final dividend. The bonus issue was made on 28 August 2020 to Shareholders on the register on the record date of 31 July 2020.
"
There is more information on the process on the next page.

No-one should expect that they need to read a 200+ page annual report to find out what is happening to their shares, but there were two key activities that might have alerted you.
Firstly a motion was placed on the order paper of the 2020 AGM to authorise the payment of the bonus share. Your broker might have been expected to alert you to the upcoming AGM (Interactive Investor does) and you might at least have glanced at the list of motions and seen the proposal.
Secondly instead of receiving a dividend payment in August 2020, you received the bonus shares. You did not notice the addition of extra shares, but neither did you notice that you had not received the missing 6.89p dividend payment. I always look at dividends, not specifically to see IF they have arrived, but mostly to see How Much!

[scrumpyjack]

If there was no option to receive cash then the bonus issue is not taxable, neither does it change the CGT cost of your holding. It simply means you have a higher number of shares with the same overall cost as before.

[Alaric]

If there was no option to receive cash then the bonus issue is not taxable, neither does it change the CGT cost of your holding. It simply means you have a higher number of shares with the same overall cost as before.

That should mean that the only tax effect is that the disposal value on transfer to the ISA was slightly higher than it would have been otherwise. But that value was known regardless and would enter the CGT calculation for the relevant year.

[Bouleversee]

This was interesting because I have received unexpected payments in the recent past and so spent a few minutes seeing if your BMY experience is really as undocumented as you describe.

I looked at the Bloomsbury Annual Report and Accounts 2021, the most recent available and see this bonus issue described in the first footnote at the bottom of page 4 of the PDF / Page 2 of Document:
"
For the year ended 29 February 2020, Bloomsbury had intended to declare a final dividend for the year of 6.89 pence per share. This would have resulted in a total dividend for the year of 8.17 pence per share. Bloomsbury decided in light of coronavirus to conserve cash and therefore made a bonus issue to Shareholders in lieu of, and with a value equivalent to, it’s proposed final cash dividend of 6.89 pence per ordinary share. The dividend for the year ended 28 February 2021 includes a special dividend of 9.78p pence per share in recognition of the boom in trading this year.
"
The word Bonus appears over 200 times in the report, but the next one of interest is on page 65/63:
"
The Board further determined that it would be appropriate to cancel the final cash dividend for 2019/2020. Major Shareholders were consulted in respect of a proposal for the Company to instead settle the dividend by way of a bonus issue, which it did following Shareholder approval at the 2020 AGM.
"
Then again on page 91/89 footnote 1 (under the dividend summary) repeats most of the above, but with further information on qualifying dates.
"
Bloomsbury had intended to declare a final dividend for the year ended 29 February 2020 of 6.89 pence per share. This would have resulted in a total dividend for the year of 8.17 pence per share, up 3% on the previous year. Bloomsbury decided, in light of the coronavirus crisis, to conserve cash and did not pay a cash dividend. Instead, as approved by Shareholders at the 2020 AGM, the dividend was settled through the issuance of new Ordinary shares by way of a bonus issue to Shareholders, with a value equivalent to the proposed final dividend. The bonus issue was made on 28 August 2020 to Shareholders on the register on the record date of 31 July 2020.
"
There is more information on the process on the next page.

No-one should expect that they need to read a 200+ page annual report to find out what is happening to their shares, but there were two key activities that might have alerted you.
Firstly a motion was placed on the order paper of the 2020 AGM to authorise the payment of the bonus share. Your broker might have been expected to alert you to the upcoming AGM (Interactive Investor does) and you might at least have glanced at the list of motions and seen the proposal.
Secondly instead of receiving a dividend payment in August 2020, you received the bonus shares. You did not notice the addition of extra shares, but neither did you notice that you had not received the missing 6.89p dividend payment. I always look at dividends, not specifically to see IF they have arrived, but mostly to see How Much!

Not sure what the point of your post was other than to chastise me. I quoted much of the statements on Bloomsbury's website (which I had not read until last week) that you quoted in my previous post. Why should I notice a missing extra dividend or be aware of a bonus issue if my broker had not alerted me to the latter? The usual 2 dividends were paid by BBY for that year. I certainly don't have time to read long annual reports unless I have been alerted to something, which is the job of the broker. I have a ridiculously large number of holdings, increased by inheritance of some of my late husband's, and due to Covid. whose arrival coincided with the diagnosis of my terminal lung disease, shielding and no longer any help in house and garden, although I do my best to keep up with events, if my brokers, who would have received the information from the company, don't alert me to the corporate action, I'm afraid I won't notice. Do you memorise the number of shares you have in each holding? At 86, my memory isn't up to that, I'm afraid.

[Bouleversee]

If there was no option to receive cash then the bonus issue is not taxable, neither does it change the CGT cost of your holding. It simply means you have a higher number of shares with the same overall cost as before.

That's the most useful info. so far, so many thanks, Scrumpyjack.

So do I just put down the no. of shares sold, original purchase cost plus charges, net sales proceeds and leave it at that, without any reference to the dividend which would otherwise have been paid, which will mean a slightly larger gain but that is not a problem as I have some c/f losses if the year's cgt allowance is exceeded by total disposals? I need to find time to do other disposals.

[scrumpyjack]

If there was no option to receive cash then the bonus issue is not taxable, neither does it change the CGT cost of your holding. It simply means you have a higher number of shares with the same overall cost as before.

That's the most useful info. so far, so many thanks, Scrumpyjack.

So do I just put down the no. of shares sold, original purchase cost plus charges, net sales proceeds and leave it at that, without any reference to the dividend which would otherwise have been paid, which will mean a slightly larger gain but that is not a problem as I have some c/f losses if the year's cgt allowance is exceeded by total disposals? I need to find time to do other disposals.

Yes I think so. There was no dividend paid. They thought about paying a dividend but did not declare one.