asked the Chancellor of the Exchequer whether he proposes to take action to counter the growing practice by companies of granting shareholders the option to receive dividends in the form of stock instead of cash, so enabling some shareholders to obtain a tax advantage.
My right hon. Friend intends to bring forward proposals in his next Budget to tax a stock dividend received in lieu of cash following the exercise of an option by a shareholder. The recipient will be chargeable to higher rate income tax and to the investment income surcharge on the amount or value of the dividend "grossed-up" at the basic rate of tax. This charge will not be limited to the straightforward case where a shareholder elects to take scrip in place of a particular cash dividend, but will also cover other arrangements which achieve a similar result, for instance, by the issue of a separate class of shares carrying the right to a stock dividend. It will apply to all such stock dividends received on or after 6th April 1975.