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Capitalisation Issue Lloyds Banking Group

On 27 February 2009 the Lloyds Banking Group Board announced a Capitalisation Issue (sometimes referred to as a Bonus or Scrip Issue) in the ratio 1:40. Investors received 1 Capitalisation Issue share for every 40 shares Lloyds Banking Group shares held at close of business on 8 May 2009 (the Record Date). The new shares were actually issued/alloted on 11 May 2009. No fractional shares were issued, and entitlement was rounded down to the nearest whole share. Investors holding fewer than 40 ordinary shares did not receive any Capitalisation Issue shares. For example, an investor holding 420 Lloyds Banking Group shares on 8 May 2009, would have received 10 Capitalisation Issue shares - one for every 40 shares held. An investor holding 39 Lloyds Banking Group shares on 8 May 2009 would not receive any Capitalisation Issue shares.

The issue of the Capitalisation shares is not subject to stamp duty or stamp duty reserve tax. And as the Capitalisation Issue was paid up out of share premium it is not be treated as a distribution for tax purposes and so should not give rise to a charge to tax on income for shareholders. Consequently there is no tax credit arising in respect of the Capitalisation Issue shares.

Instead, the issue of the Capitalisation Issue shares is treated as a reorganisation of the Company’s share capital. There is no charge to UK Capital Gains tax upon receipt of the the Capitalisation Issue shares; however if you sell part or all of your Capitalisation Issue shares after the Capitalisation Issue, it will be treated as a disposal for the purposes of UK taxation of chargeable gains. Accordingly, it may give rise to a liability to capital gains tax if you are an individual. This will depend upon your personal circumstances and will be subject to any available exemptions or reliefs.

The Capitalisation Issue shares should be treated as the same asset, acquired at the same time as your existing Lloyds Banking Group ordinary shares. For example, let us say we purchased 1000 shares in LLoyds Banking Group in February 2009. As at 8 May 2009 you own:

1000 x shares in LLoyds Banking Group purchased @ total cost = £1000
Cost per share = 100p per share

On 11 May you receive 25 Capitalisation Issue shares (1 for every 40 shares held). These shares are treated as the same asset as your Lloyds Banking Group shares and rank pari passu in all respects with your existing Lloyds Banking Group shares. And so for calculating your future capital gains (or losses) you now own:

1025 x Lloyds Banking Group shares purchased @ total cost = £1000
and the new base cost per share is £400 / 410 = 97.56p per share

To manage your Capital Gains Tax using timetotrade, you would input the LLoyds Banking Group Capitalisation Issue using the Share Reorganisation Wizard as follows:

Firstly, make sure the original share purchase is listed in your timetotrade share portfolio. As you can see in the screen shot below, in this example you can see that we purchased 1000 shares in Lloyds Banking Group (symbol LLOY.L) on 1 February 2009. For the purposes of this illustration only, we will assume that no commission or stamp duty was paid.

timetotrade provides share price data from multiple exchanges; in order to identify shares listed on the London Stock Exchange we use the Reuters format with the suffix ".L" after the usual EPIC code. In this example "LLOY.L"

Lloyds capitalisation isse 3.png

To add the Capitalisation Issue shares and access the Share Reorganisation wizard, click on the "Share Reorganisation" button as illustrated above.

This will take you through to the Share Reorganisation page. Firstly select the date that the new Capitalisation shares were issued, in this case the Lloyds shares were alloted on the 11 May 2009. Select the date from the calendar or type "11 May 2009" into the date field. When finished click "submit".

Lloyds capitalisation issue 4.png

The drop down menu on the following page lists each share held in your portfolio - select the share-holding that is subject to the share reorganisation, in this instance select "LLOY.L" from the drop down menu. When finished click the "submit" button.

Lloyds capitalisation issue 5.png

Now we need to select the type of share reorganisation your LLoyds Group share holding is subject to. In this instance select "Bonus Issue" from the drop down menu. Bonus Issue is just another term for "Capitalisation Issue". You also see capitalisation issues referred to as "Scrip Issues". Once you have selected "Bonus Issue", click on the "submit" button.

Lloyds capitalisation issue 6.png

We're now nearly complete. In the fields on the following page enter:
- the share issue ratio (ie ratio of new shares issued to existing shares held): for the LLoyds Banking Group Capitalisation issue, the ratio is 1:40, ie 1 new share for every 40 shares held.
- the number of new shares you received: in this example we received 25 new shares.
- fractional shares, issue price and cash received: leave blank, no fractional shares were issued and no cash was received

Lloyds capitalisation issue 7.png

Once finished click the "submit" button.

You will now see a summary of the the share reorganisation. Check the details are correct, and click on the blue text "click here to return to ledgers" to take you back to your share portfolio page.

Lloyds capitalisation issue 8.png

Returning to your share portfolio page, you can see the capitalisation issue (bonus issue) transaction has been added and that your "open positions" show 1025 shares of Lloyds shares, with average purchase price per share of 97.56p.

Lloyds capitalisation issue 9.png

The capitalisation issue has now been correctly accounted for within your timetotrade accounts.

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