Personal Tax

Non-cash dividends

Produced by Tolley
  • 04 Jan 2022 11:11

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

  • Non-cash dividends
  • Introduction
  • Stock dividends from UK resident companies
  • Calculating the cash equivalent
  • Dividends arising on or after 6 April 2016
  • Income tax treated as paid (dividends arising before 6 April 2016)
  • Reporting
  • Interaction with capital gains tax
  • UK stock dividends received by non-residents

Non-cash dividends

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 they would have received had they 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.

See Example 1 and Example 2.

The company should send the shareholder a statement showing the dividend forgone and details of the new

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