Statement of Practice A8
Published 31 March 1978
© Crown copyright 1978
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There are special rules when share capital is issued to an individual, personal representative or trustee of an accumulation or discretionary trust in the form of a stock dividend (ICTA 1988 ss 249–251).
Such issues are usually made as an alternative to a cash dividend. The recipient is treated as having received income which has borne an amount of Income Tax. The amount of that income is the sum of either the relevant cash dividend or the market value of the share capital, plus the tax which the income is treated as having borne.
For this purpose the amount of the cash dividend is used unless that amount is substantially greater or substantially less than the market value of the share capital (s 251(2)(a)). In interpreting ‘substantially greater or substantially less’, the practice of HM Revenue and Customs (HMRC) is generally to use the market value of the share capital when that value exceeds the amount of the cash dividend by 15% or more of the market value of the share capital, or when that value is less than the amount of the cash dividend by 15% or more of the market value of the share capital.
However, HMRC are normally prepared to use the amount of the cash dividend when the difference between the market value of the share capital and the cash dividend is no more than 1 or 2 percentage points greater than 15%. In other cases, the amount of the cash dividend is used.