Commentary

I5.1007 Stock dividends received by trustees

IHT, trusts and estates

I5.1007 Stock dividends received by trustees

I5.1007 Stock dividends received by trustees

Stock dividends—overview

Companies frequently offer shareholders the option of taking additional shares in the company as an alternative to a cash dividend. Such shares are called stock, or 'scrip', dividends.

Where the recipient of such shares is an individual, the amount of the cash dividend (or, if greater, the market value of the stock dividends), is deemed to be savings income of the recipient1 (which, for tax years before 2016/17, suffered deduction of tax at the dividend ordinary rate2).

Trustee shareholders rarely take up such offers, because any benefit to the trust is often outweighed by the administrative complications and the cost of transferring the shares to the person entitled.

However, they are more likely to take the additional shares when they are offered as an 'enhanced scrip dividend', ie where the number of issued shares is deliberately set so that their market value is significantly higher than the cash alternative.

Stock dividends received by interest in possession trustees

Stock dividends received by IIP trustees—overview

The trust law on the treatment of an enhanced stock dividend by the trustees of IIP trusts is not clear, and decided cases show that in certain circumstances they may either treat:

  1.  

    •     the whole of the dividend as income of the beneficiary3

  2.  

    •     the basic amount of the dividend as income and the enhanced part as capital4, or

  3.  

    •     the whole of the dividend as capital5

HMRC issued a Statement of Practice6

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