Corporation Tax Act 2010 section 1049

Stock dividends

Section 1049 sets out the corporation tax treatment of share capital issued by a UK resident company as a stock dividend (shares in lieu of cash) or as bonus shares, and explains when such issues are not treated as distributions.

• Where a UK resident company issues shares instead of paying a cash dividend, or issues bonus shares in respect of a qualifying class of shares, special rules apply to determine whether the issue counts as a distribution.
• Shares are of a qualifying class if they carry a right to receive bonus share capital (of the same or a different class), and that right was part of the original terms of issue or was added by a later variation of those terms.
• If the share capital is charged to income tax on the recipient under the stock dividend income rules in ITTOIA 2005, the issue is not treated as a distribution for corporation tax purposes, and is not regarded as paid up otherwise than by new consideration.
• These rules are subject to further provisions in section 1050 (conversion of bonus share capital) and special transitional rules in Schedule 2 for shares originally issued before 6 April 1975.