CG58750 - Shares and Securities: Particular types of transaction: Stock dividends: Contents
Stock dividends: introduction
A stock dividend is a dividend in which the company allows its shareholders to take extra shares instead of the usual cash payment. Sometimes it is called a scrip dividend. Because the shares are issued free to the shareholders it is a form of bonus issue, see CG50290.
Usually a bonus issue of shares is not income in the shareholder’s hands. But ITTOIA2005/S410 onwards treats a stock dividend as income. see SAIM5150.
This guidance only applies to stock dividends which are treated as income. A shareholder who takes such a stock dividend receives not only an income receipt but also a capital asset in the form of shares. It is necessary to establish the Capital Gains Tax base cost of the shares.
TCGA92/S142 provides that if ITTOIA2005/S410 applies to a stock dividend, the taxpayer is treated as though they paid the appropriate amount in cash for the new shares. This is the amount taken into account for Income Tax purposes before the addition of the Income Tax treated as paid.
In addition TCGA92/S142 also provides that a stock dividend will not be treated as a share reorganisation within Section 126. As a result, the new shares are treated as a new acquisition of shares and are not added to any existing holdings under the normal reorganisation treatment in TCGA92/S127, see CG51805+. Any disposal of the shares will be matched with acquisitions under the rules set out in CG51550+.
For companies also see CTM17000+.