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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Disposals by trustees: stock dividends: shares held by trustees: Income Tax

Where the shares in respect of which the stock dividend is issued are held by trustees, ITTOIA05/S410 applies in some cases but not others. If Section 410 does not apply then the stock dividend is not income for Income Tax purposes. For the Capital Gains Tax treatment of such cases see CG33814 below.

In considering whether and how ITTOIA05/S410 applies to trustees, it is first necessary to decide into which one of the five categories listed below the trust falls. The Income Tax treatment is covered in more detail in CTM17000 onwards.

  1. Bare Trust. The meaning of the expression `bare trust’ is explained at CG34300+. In this situation the trust is ignored and the beneficiaries are treated for Capital Gains Tax purposes as the owners of the share capital. The normal rules for individuals apply, see CG58750.
  2. Beneficiary entitled to the Stock Dividend. If a person who is an individual is beneficially entitled to the stock dividend, then he or she is assessable to higher rate tax under ITTOIA05/S410(2). The question whether a person is beneficially entitled to the stock dividend is discussed in CG33815. The Capital Gains Tax treatment is set out in CG33812.
  3. Discretionary or Accumulation Trust. If trustees receive a stock dividend, and would have been assessable under ITA07/S479, see TSEM 1112, on all or part of the dividend if it had been paid in cash, then ITTOIA05/S410(3) applies. The Capital Gains Tax treatment is explained in CG33813.
  4. Scottish liferenter (1993-94 onwards). The liferenter may be assessable under ITTOIA05/S410(2) even though he or she is not absolutely entitled to the stock dividend, as the result of ITA07/S464, see CG33817.
  5. Other Trusts. ITTOIA05/S410 does not apply. The Capital Gains Tax treatment is explained in CG33814.