Income Tax (Trading and Other Income) Act 2005 section 412

Cash equivalent of share capital

Section 412 explains how to calculate the cash equivalent of share capital received as a stock dividend, which is the amount that will be treated as taxable stock dividend income.

• Where shares are issued instead of a cash dividend, the cash equivalent is normally the amount of the cash dividend the shareholder could have chosen instead.
• However, if the difference between the cash dividend alternative and the market value of the shares is 15% or more of that market value, the cash equivalent becomes the market value of the shares instead.
• Where shares are issued as bonus share capital (not in lieu of a cash dividend), the cash equivalent is simply the market value of the shares.
• Market value is determined on the first dealing date for listed shares, or on the earliest date the company was required to issue the shares for unlisted shares.