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HMRC internal manual

Capital Gains Manual

Disposals by trustees: shares held by trustees: discretionary/accumulation

TCGA92/S141 and S142

If the trustees are assessable under ITTOIA05/S410(3) (formerly ICTA88/S249(6)), because a cash dividend would be wholly or partly within ITA07/S479 (formerly ICTA88/S686), the Capital Gains Tax treatment depends upon when the shares constituting the stock dividend were issued.

If the shares are issued before 6 April 1998, then, under TCGA92/S141 this is treated as a reorganisation within TCGA92/S126, see CG51700+, with the trustees having given `the appropriate amount in cash’ CTM17010) for the additional shares. If the trustees then chose to, or had to, distribute the stock dividend shares to one or more of the beneficiaries, that would be a disposal by them of the shares in question, at market value, with the appropriate pooling rules applying.

If the shares are issued on or after 6 April 1998, then, under a revised TCGA92/S142 the stock dividend is not treated as a share reorganisation within TCGA92/S126. Instead it is treated as a new acquisition of shares by the trustees, with the cost of acquisition being the ‘cash equivalent of the share capital’ under ITTOIA05/S412. Any subsequent distribution of the stock dividend shares by the trustees to the beneficiaries would be a disposal at market value, with the shares being identified with acquisitions under the normal rules set out in CG51550+.