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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. Ìý

   •ÌýÌýÌýÌý 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. Ìý

   •ÌýÌýÌýÌý 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