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HMRC internal manual

Capital Gains Manual

Stock dividends: IT treatment

ICTA88/S249 - S251

Usually a bonus issue of shares is not income in the shareholder’s hands. But ICTA88/S249-ICTA88/S251 treat a stock dividend as income if it is received by

  • an individual
  • the personal representative of a deceased person
  • the trustee of a discretionary trust.

If a stock dividend is treated as income the main features of the scheme are as follows.

  • The taxpayer is treated as having received after tax an amount called the appropriate amount in cash which is grossed up in computing their income.
  • The taxpayer is liable to Higher Rate Tax on the grossed up amount but cannot claim repayment of any of the Income Tax treated as paid.
  • Generally the company does not have to account for Advance Corporation Tax on the payment, see CTM17005+.