Income and Corporation Taxes Act 1988

Stock dividends

12(1)Where a company issues to a close company any relevant share capital, sub-paragraphs (2) and (3) below shall apply as regards that share capital, and in this paragraph—

• “the relevant accounting period” means the accounting period of the close company in which the due date of issue falls;

• “relevant share capital” means share capital to which section 249 applies; and

• “appropriate amount in cash” has the meaning given by section 251(2).

(2)The relevant income of the close company for the relevant accounting period, as determined under paragraph 1 above, and the amount which, under paragraph 2 above (read, where appropriate, with paragraph 10 above) the relevant income of the close company for that period cannot exceed, shall each be increased by an amount equal to the appropriate amount in cash (or, if it would otherwise be nil, be treated as equal to the appropriate amount in cash).

(3)The amount, if any, which would otherwise be disregarded under paragraph 11(1) above shall be reduced by an amount equal to the appropriate amount in cash.

(4)Where a close company issues any relevant share capital in a case falling within section 249(4), (5) or (6) or sub-paragraph (1) above (read in each case with section 249(3)), the company shall be treated for the purposes of paragraph 3(1) and (2) above—

(a)as if a dividend of an amount equal to the appropriate amount in cash had been paid on the due date of issue; and

(b)where, in relation to that share capital, “the appropriate amount in cash” has the meaning given by section 251(2)(a), as if that dividend had been declared in respect of the accounting period (if any) in respect of which the relevant cash dividend (as defined in section 251(3)) was declared.