Taxation of Chargeable Gains Act 1992 section 142

Capital gains on stock dividends

Section 142 deals with the capital gains tax treatment of stock dividends — that is, where a company issues new shares to its shareholders instead of paying a cash dividend.

• When a stock dividend is issued and the recipient is assessable to income tax on it, the share issue is not treated as a reorganisation of share capital for CGT purposes.
• Because the issue is not a reorganisation, the original CGT base cost of the existing shares held by the trustees (or other holder) remains unchanged.
• The person who receives the new shares is treated as having acquired them at a cost equal to the "cash equivalent" of the share capital, as determined under the income tax rules.
• There is no disposal — actual or deemed — by the trustees when the stock dividend is passed to the beneficiary.