STSM021130 | Scope of stamp duty on shares: stamp duty: basics of a charge: dividend in specie

When a company declares a dividend, this is a voluntary disposition by the company to its shareholders. As such, no Stamp Duty charge arises. In contrast, satisfying an obligation that has been created is the release of a debt, which is chargeable consideration for Stamp Duty purposes. The Stamp Duty treatment of these two scenarios is shown below:

Scenario One

Company A owns shares in Company B.

Company A declares a dividend in money. Company A agrees that the shares it owns in B will be transferred to (all or some of) its shareholders in lieu of that cash dividend.

When Company A declared the dividend, it created a debt due to its shareholders. Satisfying that debt with the transfer of shares causes a charge to Stamp Duty to arise under section 57 SA1891, calculated by reference to the value of the debt released. See STSM021070 for further information.

Scenario Two

Company A owns shares in Company B.

Company A declares the shares in Company B as a dividend. The Company A shareholders never have a right to receive any cash from Company A under the dividend.

There is no chargeable consideration for Stamp Duty purposes and so no charge to Stamp Duty normally arises. However, on 29 October 2018 a Market Value Rule for listed securities was introduced. Where the conditions are met, this may now cause a Stamp Duty charge to arise. Further information on the Market Value Rule is available in STSM021310 and STSM031210.

Information on company dividends may be found in board meeting minutes.