Below are definitions of various terms that appear in the stock dividends legislation.
A stock dividend can be either:
'Bonus share capital' and 'shares of a relevant class' are defined below.
A person is treated as exercising an option if he abandons or fails to exercise a right.
This is share capital that a company issues otherwise than in return for new consideration. If part of the share capital is issued for new consideration, then that part which is not referable to the new consideration is within the definition of bonus share capital. The definition of new consideration is at CTM15140, although for this purpose ICTA88/S254 (5) is disapplied.
Shares are of a relevant class where:
See CTM17005 concerning normal bonus issues.
This is the measure of the income a stock dividend represents. It is defined in ICTA88/S251.
Where the company issues the stock dividend either:
then the 'appropriate amount in cash' is the amount of the relevant cash dividend. However, if the amount of the cash dividend differs substantially from the market value of the stock dividend on the relevant date, the 'appropriate amount in cash' is the market value of the stock dividend.
In deciding whether the amount of the cash dividend differs substantially from the market value of the stock dividend, you should accept any difference up to 15% as being not substantial.
The figure of 15% arose at Committee stage during the introduction of the legislation. The Chief Secretary to the Treasury said that another 1% or 2% could also be ignored in appropriate cases. We would view appropriate cases as being those not involving avoidance.
It is unclear from the report of the proceedings whether the 15% difference is computed by reference to the cash dividend or the market value. You can interpret it either way but it will always be to the advantage of the recipient to use 15% of market value. That is why SPA8 says to use market value.
Where the company issues the stock dividend in any other circumstances, the 'appropriate amount in cash' is the market value of the stock dividend.
Where a person has exercised an option to take shares in lieu of a cash dividend, the relevant cash dividend is the amount of the cash dividend that the person could have opted for. A company will often pay a small cash dividend with a stock dividend. This is in order to preserve trustee status for the shares.
The legislation does not say what to do where the person receives both a stock dividend and also a cash dividend with it. In practice, you should arrive at the relevant cash dividend as follows:
A company may also pay a small cash dividend if a stock dividend is only made available in respect of a multiple of a certain number of shares. In these circumstances:
Where the company has issued the stock dividend in a quantity which is determined by, or which determines, the amount of a cash dividend payable on a different class of the company's shares then if the company pays an accompanying cash dividend as well as a stock dividend on the same shares:
In other cases:
This is the price the shares would fetch on a sale in the open market.
This is the earliest date on which the company was required to issue the stock dividend.