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HMRC internal manual

Capital Gains Manual

Disposals by trustees: shares held by trustees: trusts established under law of England & Wales or law of Northern Ireland: enhanced stock dividend

CG33815 is concerned with conventional stock dividends, where the value of the share alternative is intended to be equal to that of the cash dividend. The position is however different in the case of an `enhanced stock dividend’, that is to say a stock dividend which is worth significantly more than the cash dividend which is offered. In such a case the stock dividend properly belongs to the trustees because it is capital. It is however up to the trustees to decide in the light of the terms of the trust deed whether the enhanced stock dividend should be regarded as capital or income in their hands. HMRC will accept the approach which the trustees decide to adopt, provided that the conclusion is supportable on the facts of the particular case. Where it is capital, ITTOIA05/S410(2) does not apply, and CG33814 should be followed. On the other hand ITTOIA05/S410(3) does apply to enhanced stock dividends in the case of accumulation and discretionary settlements, and mixed trusts, in which case CG33813 applies.

The trustees may be obliged to make a payment to the income beneficiary in the light of the decision in re Malam (not a tax case). HMRC issued a Statement of Practice in May 1994 concerning trustees and enhanced stock dividends, which explains the Income Tax treatment. There are no Capital Gains Tax consequences unless the trustees actually hand over part of the stock dividend, in which case see CG33814.

If exceptionally the enhanced stock dividend is income, then CG33815 is applicable.