Dividends and other company distributions: stock dividends: the tax charge
To whom does the income arise?
ITTOIA05/S409 charges ‘stock dividend income’ to tax.
Under ITTOIA05/S410 the income is treated as arising to, depending on circumstances
- an individual who is beneficially entitled to the share capital,
- trustees of accumulation and discretionary trusts, to whose income ITA07/S480 applies, or
- personal representatives.
The income arises on the earliest date the company is required to issue the share capital in question.
Under ITTOIA05/S411 the amount charged is the cash equivalent of the stock dividends. Stock dividend income treated as arising in tax years up to 2015-16 was grossed up at the dividend ordinary rate (SAIM1070) for the tax year.
The person liable
Under ITTOIA05/S413 the person liable is the individual or the trustees to whom the income arises under section 410. Individuals who are beneficially entitled to stock dividend income could include outright owners, beneficiaries under a nominee arrangement or bare trust, or beneficiaries with interest in possession.
If stock dividends are issued to personal representatives during the administration period, stock dividend income is not taxed under ITTOIA05/PART4/CHAPTER5. Instead, that income forms part of the aggregate income of the estate for the purposes of ITTOIA05/PART5/CHAPTER6 (see ITTOIA05/S664 (2)(c) or CTA09/S947 (2)(c)).
ITTOIA05/S413 (5) allows for apportionment of stock dividend income in proportion to the share capital issued to two or more persons.
The tax charge
Stock dividend income that would otherwise be chargeable at higher rate is taxable at the dividend upper rate (SAIM1070).
See CG58150 onwards (SAIM20000) for details of the capital gains tax treatment of stock dividends.