Non-cash dividends

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Non-cash dividends
  • Introduction
  • Stock dividends from UK resident companies
  • UK stock dividends received by non-residents

Introduction

A dividend is not only a payment in cash. It can be the issue of new shares in exchange for forfeiting the right to a cash payment (a stock dividend). For more on payments in cash, see the Cash dividends guidance note.

The tax treatment of non-cash dividends can be easily overlooked by taxpayers. It is good practice to include a note on this in the initial Tax Return information request letter or Tax Return information prompt sheet / checklist.

Stock dividends from UK resident companies

In order to maintain cash balances, sometimes a company will offer the shareholder new shares in the company instead of a cash dividend. These shares, received in lieu of cash, are known as ‘stock dividends’ or ‘scrip dividends’.

Calculating the cash equivalent

If an individual accepts new shares in place of the cash dividend, the individual is taxed on the cash equivalent of the shares received. The cash equivalent is usually the cash he would have received had he not chosen the stock alternative. However, if the difference between the cash forgone and the market value of the new shares is 15% or more of the market value of the new shares, the cash equivalent is the market value of the new shares.

ITTOIA 2005, s 412

See Example 1 and Example 2.

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