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Introduction

A dividend is not only a payment in cash. It can be the issue of new shares in exchange for forfeiting the right to a cash payment (a stock dividend). For more on payments in cash, see the Cash dividends guidance note.

The tax treatment of non-cash dividends can be easily overlooked by taxpayers. It is good practice to include a note on this in the initial tax return information request letter or tax return information prompt sheet / checklist.

There are two main types of non-cash dividends: stock dividends and dividends / distributions in specie.

Stock dividends from UK resident companies

In order to maintain cash balances, sometimes a company will offer the shareholder new shares in the company instead of a cash dividend. These shares, received in lieu of cash, are known as ‘stock dividends’ or ‘scrip dividends’.