What is the tax treatment of scrip dividends in the UK?

Question

What is the tax treatment of a scrip dividend in the UK? Do I declare the value of shares as income or the actual value of the dividend?

Answer 1

I wrote about this in another answer:

You can sell the scrip dividend in the market; the capital gain from this sale may fall below the annual tax-free allowance for capital gains, in which case you don't pay any capital gains tax on that amount. For a cash dividend, however, there isn't a minimum taxable amount, so you would owe dividend tax on the entire dividend (and may therefore pay more taxes on a cash dividend).

Since you haven't sold the shares in the market yet, you haven't earned any income on the shares. You don't owe taxes on the scrip until you sell the shares and earn capital gains on them. HMRC is very explicit about this, in CG33800:

It is quite common for a company, particularly a quoted company, to offer its shareholders the option of receiving additional shares instead of a cash dividend. The expression `stock or scrip dividend' is used to describe shares issued in such circumstances.

The basic position under tax law is that when a company makes a bonus issue of shares no distribution arises, and the bonus issue of shares is not income for tax purposes in the hands of the recipient.

Obviously, if this is an issue for you, talk to a tax professional to make sure you get it right.

Answer 2

Scrip dividends are liable to income tax in the same way that cash dividends are. After the tax free dividend allowance of £2,000 (fr 2018-19 onward) had been used then you pay tax at the appropriate self assessment rate.

If the value of the scrip dividend shares varies by more that 15% from the value of those share on the scrip dividend payment date, the the HMRC have the right to use the higher value for taxation purposes.E.G:

Cash equivalent value of scrip shares issued = £1,000 No. of shares issues = 100 cash equivalent per share = £10

So provided the stock market price per share was in the range £8.51 to £11.49 on the payment date, then you quote the cash equivalent in your tax form return i.e £1,000 for these shares

Answer 3

The HMRC website says:

Stock dividends are treated as income by virtue of CTA10/S1049, and taxable as savings income under Chapter 5 of Part 4 of ITTOIA05 (sections 409 to 414).

ITTOIA05 is the Income Tax (Trading and Other Income) Act 2005, and says:

409 Charge to tax on stock dividend income

(1) Income tax is charged on stock dividend income.

(2) In this Chapter “stock dividend income” means the income that is treated as arising under section 410.

411 Income charged

(1) Tax is charged under this Chapter on the amount of stock dividend income treated for income tax purposes as arising in the tax year.

(2) That amount is the cash equivalent of the share capital on the issue of which the stock dividend income arises (see section 412), grossed up by reference to the dividend ordinary rate for the tax year.

Answer 4

The HMRC website would explain it better to you. There is a lot of factors and conditions involved, so refer to the HMRC website for clarification. If your question had more details, it could have been easy to pinpoint the exact answer.

Do I declare the value of shares as income

Why would you do that ? You haven't generated income from that yet(sold it to make a profit/loss), so how can that be declared as income.