Dividends and other company distributions: stock dividends: the tax charge
Who does the income arise to?
ITTOIA05/S409 charges ‘stock dividend income’ to tax.
Under ITTOIA05/S410 the income is treated as arising to
- an individual who is beneficially entitled to the share capital;
- trustees, if the shares are issued to trustees, and a cash dividend is paid to them which would be income to which ITA07/S480 (accumulation and discretionary trusts) applies;
- personal representatives.
The income arises on the earliest date on which 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 issued 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, a beneficiary of a bare trust or one with an interest in possession, or the beneficial owner under a nominee arrangement.
If stock dividends are issued to personal representatives during the administration period, stock dividend income is not taxed under Chapter 5 of Part 4 of ITTOIA05. Instead, that income forms part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5 (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.
See CG58150 onwards (SAIM20000) for details of the capital gains tax treatment of stock dividends.