Glossary · UK
What is Stock Split?
A corporate action in which a company divides its existing shares into multiple new shares, reducing the price per share proportionally without changing the total value of a shareholder's holding.
Full Definition
A stock split is a corporate action in which a company increases its total number of shares in issue by dividing each existing share into two or more new shares, without changing the underlying value of the company or the proportion of the company each shareholder owns. In a common "two-for-one" split, for example, a shareholder who previously held 100 shares priced at GBP 20 each (a holding worth GBP 2,000) would afterwards hold 200 shares priced at approximately GBP 10 each, still worth GBP 2,000 in total; companies most often carry out a split when their share price has risen to a level considered too high for smaller retail investors to trade easily, since a lower nominal share price can improve liquidity and make the stock more accessible, even though nothing about the company's underlying fundamentals, earnings or total market value has changed. A stock split is the opposite of a reverse stock split (sometimes called a share consolidation), where multiple existing shares are combined into fewer, higher-priced shares, which companies sometimes use to boost a depressed share price, for example to meet a stock exchange's minimum listing price requirement. For UK tax purposes, a straightforward stock split is not a disposal for Capital Gains Tax purposes and does not trigger an Income Tax charge, since the shareholder has not received anything of new value, only more shares representing the same underlying stake; instead, the total cost of the original shares within the Section 104 share pool is simply spread across the larger number of new shares, so the pool's total cost stays the same but the cost per share falls proportionally to reflect the split ratio. Shareholders do not need to report a stock split to HMRC or take any action for tax purposes, though they should keep a record of the split ratio and the date, since it will be needed to correctly recalculate the average pool cost per share when the shares are eventually sold and a Capital Gains Tax computation is required.