Commentary

D6.232 Rights issue—take up of rights

Corporate tax
Corporate tax | Commentary

D6.232 Rights issue—take up of rights

Corporate tax | Commentary

D6.232 Rights issue—take up of rights

Tax treatment of a rights issue

Where rights issue shares are taken up, the take up is tax neutral for the shareholder because the issue is treated as a reorganisation (D6.101–D6.103)1. The new holding will be treated as the same asset as the original holding, acquired at the same time. However, indexation (where relevant, see C2.301) on any amounts paid to take up the rights issue runs from the date the rights issue shares were paid for not the date the original shares were acquired.

The treatment above applies even if:

  1.  

    (i)     not all the shareholders take up their rights; it is sufficient that those who do take up their rights are allotted shares in respect of and in proportion to their existing holdings2. The shares so acquired will not constitute an income distribution in the hands of the shareholder, or

  2.  

    (ii)     shares are allotted to a shareholder who already owns the whole of the issued share capital of a company (see the Dunstan v Young, Austen & Young Ltd case below)

Consideration given by the shareholder for the rights issue shares is treated as having been given for the original shares3. As to the allocation of such consideration and apportionment of the original base cost between different classes of share comprised in the new holding, see D6.223 and D6.224.

Cases where amount paid on a rights issue will not form part of base cost

Consideration given by the shareholder for the new holding or any part of

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