Income Tax (Trading and Other Income) Act 2005 section 78A

Stock dividends issued in respect of shares issued before 6 April 1975

Section 78A provides relief from stock dividend income tax charges where bonus share capital is issued in connection with conversion or exchange rights attached to shares originally issued before 6 April 1975.

• Where a UK resident company issues share capital in respect of pre-6 April 1975 shares that carry conversion or exchange rights into a different class of shares, special protection may apply against stock dividend income charges.
• The stock dividend income rules under section 410 do not apply to the "protected part" of any bonus share capital issued when such conversion or exchange rights are exercised.
• The protected part is the amount of bonus share capital that would have been issued had the conversion or exchange right been exercised at the earliest possible date after 5 April 1975.
• For these purposes, "share" includes stock and any other interest of a member in a company, and the meaning of "in respect of shares" follows the definition in section 1113 of the Corporation Tax Act 2010.