Income Tax (Trading and Other Income) Act 2005 (c. 5)

Part 4 U.K. Savings and investment income

Chapter 5 U.K. Stock dividends from UK resident companies

409 Charge to tax on stock dividend income U.K.

(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.

410 When stock dividend income arises U.K.

[F1 (1) This section applies to—

(a) share capital issued by a UK resident company in lieu of a cash dividend, and

(b) bonus share capital issued by a UK resident company in respect of shares in the company of a qualifying class.

(1A) For the purposes of subsection (1)(b), shares are of a qualifying class if—

(a) shares of that class carry the right to receive bonus share capital in the company (of the same or a different class), and

(b) that right is conferred by the terms on which shares of that class were originally issued or by those terms as subsequently extended or otherwise varied.]

(2) If an individual is beneficially entitled to that share capital, income is treated as arising to the individual.

(3) If—

(a) the share capital is issued to trustees in respect of shares they hold in the company (alone or with others), and

(b) a cash dividend paid to them in respect of the shares would have been to any extent [F2 accumulated or discretionary income (as defined in section 480 of ITA 2007 but excluding income arising under a [F3 charitable trust ] or an unauthorised unit trust in relation to which [F4 regulation 12 of the Unauthorised Unit Trusts (Tax) Regulations 2013] applies)] ,

income is treated as arising to the trustees.

(4) If the share capital is issued to personal representatives during the administration period, income is treated as arising (but see section 413(4)).

(5) In subsection (4) “administration period” has the meaning given by section 653.

(6) Income within this section is treated as arising on the earliest date on which the company is required to issue the share capital in question.

(7) See section 413(5) (apportionment) if two or more persons are entitled to the share capital.

[F5 (8) There are special rules in paragraph 78A of Schedule 2 for share capital issued in respect of shares issued before 6 April 1975.]

Textual Amendments

F1 S. 410(1)(1A) substituted (1.4.2010) for s. 410(1) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 458(2) (with Sch. 2)

F2 Words in s. 410(3)(b) substituted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 519 (with transitional provisions and savings in Sch. 2)

F3 Words in s. 410(3)(b) substituted (with effect in accordance with art. 15 of the commencing S.I.) by Finance Act 2010 (c. 13), Sch. 6 paras. 21(2), 34(2); S.I. 2012/736, art. 15

F4 Words in s. 410(3) substituted (6.4.2014) by The Unauthorised Unit Trusts (Tax) Regulations 2013 (S.I. 2013/2819), regs. 1(3), 36(7) (with reg. 32)

F5 S. 410(8) inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 458(3) (with Sch. 2)

[F6 410A Conversion etc of bonus share capital U.K.

(1) This section applies if bonus share capital falling within section 410(1)(b) is converted into, or exchanged for, shares in the company of a different class.

(2) Section 410 does not apply to any shares in the company issued—

(a) in connection with the conversion or exchange, and

(b) in consideration of the cancellation, extinguishment or acquisition by the company of the bonus share capital.]

Textual Amendments

F6 S. 410A inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 459 (with Sch. 2)

411 Income charged U.K.

(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)F7 ....

Textual Amendments

F7 Words in s. 411(2) omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 17

412 Cash equivalent of share capital U.K.

(1) The cash equivalent of share capital [F8 issued as mentioned in section 410(1)(a) is the amount of the cash dividend alternative (see section 414A(2))].

(2) But if the difference between the cash dividend alternative and the share capital's market value equals or exceeds 15% of that market value—

(a) subsection (1) does not apply, and

(b) the cash equivalent of the share capital is its market value.

(3) The cash equivalent of share capital [F9 issued as mentioned in section 410(1)(b)] is its market value.

(4) For the purposes of this section, market value is determined—

(a) in the case of listed share capital, on the date of first dealing, and

(b) in the case of other share capital, on the earliest date on which the company is required to issue it.

(5) In this section—

• “listed” means listed in the Stock Exchange Daily Official List, and

• “market value” has the same meaning as in sections 272(1) and (3) and 273(3) of TCGA 1992.

Textual Amendments

F8 Words in s. 412(1) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 460(2) (with Sch. 2)

F9 Words in s. 412(3) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 460(3) (with Sch. 2)

Modifications etc. (not altering text)

C1 S. 412(1)(2)(4)(5) applied (16.12.2010) by Taxation of Chargeable Gains Act 1992 (c. 12), s. 142A(5) (as inserted (with effect in accordance with Sch. 4 para. 12 to the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 4 para. 1)

C2 S. 412(1)(2)(4)(5) applied (16.12.2010) by Corporation Tax Act 2010 (c. 4), s. 599A(2) (as inserted (with effect in accordance with Sch. 4 para. 12 to the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 4 para. 10)

413 Person liable U.K.

(1) The person liable for any tax charged under this Chapter is the person indicated by this section.

(2) If section 410(2) applies, the individual is liable for the tax.

(3) If section 410(3) applies, the trustees are liable for the tax.

(4) If section 410(4) applies, tax is not charged under this Chapter, but see—

(a) section 664 (under which the income treated as arising to the personal representatives under section 410 is treated as part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5), and

[F10 (b) section 947 of CTA 2009 (under which similar provision is made for the purposes of Chapter 3 of Part 10 of that Act)].

(5) If two or more persons are entitled to the share capital on the issue of which the stock dividend income arises, this Chapter applies as if the company issuing it had issued to each of those persons a proportionate part of the share capital.

(6) In subsection (5) “proportionate part” means a part proportionate to the person's interest on the earliest date on which the company is required to issue the share capital.

Textual Amendments

F10 S. 413(4)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 630 (with Sch. 2 Pts. 1, 2)

[F11 413A Temporary non-residents U.K.

(1) This section applies if—

(a) an individual is temporarily non-resident,

(b) relevant stock dividend income is treated under this Chapter as arising to the individual in the temporary period of non-residence,

(c) the tax year in which it is treated as arising (“the arising year”) is a tax year for which the individual is UK resident, and

(d) the amount of income tax charged on the relevant stock dividend income under this Chapter is less than it would have been if the existence of double taxation relief arrangements were disregarded.

(2) Subsections (3) and (4) have effect in cases where the arising year is not the year of return.

(3) The total income (see Step 1 of the calculation in section 23 of ITA 2007) on which the individual is charged to income tax for the year of return is to be increased by an amount equal to the amount on which tax would be charged under this Chapter in respect of the relevant stock dividend income disregarding any double taxation relief arrangements.

(4) But the notional UK tax on that relevant stock dividend income is to be allowed as a credit against the individual's liability to income tax for the year of return under Step 6 of the calculation in section 23.

(5) If the arising year is the year of return, the tax charged under this Chapter in respect of the relevant stock dividend income is to be charged and assessed without regard to the existence of double taxation relief arrangements.

(6) Stock dividend income is “relevant stock dividend income” if—

(a) the UK resident company that issues the share capital or bonus share capital is a close company, and

(b) the individual is beneficially entitled to that share capital or bonus share capital by virtue of being at a relevant time—

(i) a material participator in the company, or

(ii) an associate of a material participator in the company.

(7) But stock dividend income within subsection (6) is not “relevant stock dividend income” to the extent that the share capital or bonus share capital is issued in respect of post-departure trade profits.

(8) “Post-departure trade profits” are—

(a) trade profits of the close company arising in an accounting period that begins after the start of the temporary period of non-residence, and

(b) so much of any trade profits of the close company arising in an accounting period that straddles the start of that temporary period as is attributable (on a just and reasonable basis) to a time after the start of that temporary period.

(9) The extent to which share capital or bonus share capital is issued in respect of post-departure trade profits is to be determined on a just and reasonable basis.

(10) The “notional UK tax” on the relevant stock dividend income is so much of the income tax paid by the individual for the arising year as is attributable on a just and reasonable basis to that income.

(11) In this section—

• “associate” and “participator” have the same meanings as in Part 10 of CTA 2010 (see sections 448 and 454);

• “material participator” means a participator who has a material interest in the company, as defined in section 457 of that Act;

• “relevant time” means—

  (a)

  any time in the year of departure or, if the year of departure is a split year as respects the individual, the UK part of that year, or

  (b)

  any time in one or more of the 3 tax years preceding that year;

• “trade profits of the close company” means the profits of any trade carried on by the close company, as calculated in accordance with Part 3 of CTA 2009 (trading income).]

Textual Amendments

F11 S. 413A inserted (with effect in accordance with Sch. 45 para. 153(3) of the amending Act) by Finance Act 2013 (c. 29), Sch. 45 para. 135

F12 414 Income tax treated as paid U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F12 S. 414 omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 1(1)

[F13 414A Interpretation of Chapter U.K.

(1) In this Chapter “bonus share capital” means—

(a) share capital issued otherwise than wholly for new consideration, or

(b) the part (if there is such a part) of any share capital so issued that is not properly referable to new consideration.

(2) For the purposes of this Chapter share capital is issued by a company in lieu of a cash dividend if—

(a) it is issued in consequence of the exercise by any person of an option conferred on the person, and

(b) that option is an option to receive, in respect of shares in the company, either a dividend in cash or additional share capital.

(3) For the purposes of subsection (2), an option to receive either a dividend in cash or additional share capital is conferred on a person not only—

(a) if the person is required to choose one or the other, but also

(b) if the person is offered the one subject to a right, however expressed, to choose the other instead.

(4) The reference in subsection (2) to a person's exercise of an option includes a person's abandonment of, or failure to exercise, a right such as is mentioned in subsection (3)(b).

(5) In this Chapter “share” includes stock, and any other interest of a member in a company.

(6) If two or more companies enter into arrangements to make distributions to each other's members, all parties concerned (however many) may, for the purposes of this Chapter, be treated as if anything done by any one of those companies had been done by any one of the others.

(7) The following apply in relation to this Chapter as they apply in relation to Part 23 of CTA 2010—

(a) section 1113 (“in respect of shares”) of CTA 2010,

(b) section 1115 (“new consideration”) of CTA 2010.]

Textual Amendments

F13 S. 414A inserted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 461 (with Sch. 2)

Modifications etc. (not altering text)

C3 Ss. 414A(2)-(4) applied (16.12.2010) by Taxation of Chargeable Gains Act 1992 (c. 12), s. 142A(4) (as inserted (with effect in accordance with Sch. 4 para. 12 to the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 4 para. 1)