CGT 14 Scrip Issues & Sale of Rights

Question 1

A scrip dividend is when…

Answer 1

a company gives a shareholder new shares in the company
instead of a cash dividend. This is also called a stock dividend.

Question 2

What are the income tax implications for a scrip dividend?

Answer 2

The cash dividend given up is liable to income tax.

If the market value of the shares differs from the cash forgone by 15% or more of that market value, then the market value is liable to income tax rather than the cash given up. This is known as an enhanced scrip dividend.

Question 3

For CGT purposes, shares acquired under a scrip dividend are treated as …..

Answer 3

a normal purchase of shares.

The CGT base cost of the scrip shares is the amount charged to
income tax.

Question 4

If a company announces a rights issue, the shareholder could sell the rights in a ‘sale of rights nil paid’ and this is treated as …..

Answer 4

a part disposal of the underlying shares.

Question 5

if the proceeds from the sale of the rights are ….

then the proceeds are instead ….

Answer 5

‘small’ (not more than either £3,000 or 5% of the value of the shares held)

automatically deducted from the base cost of the shares and there is no part disposal