CTM17030 | Distributions: stock dividends: conversion of bonus capital
From HM Revenue & Customs · Company Taxation Manual
If bonus share capital which falls within is converted into, or exchanged for, shares in the company of a different class, the stock dividend rules are not applied to the replacement shares, including whether these are acquired in exchange for cancellation or extinguishment of the bonus share capital. However, where a charge under has arisen, the replacement shares are subject to the treatment described at , that is, they do not give rise to a distribution by virtue of being bonus shares.