Glossary · UK
What is Scrip Dividend?
A dividend paid in the form of new shares instead of cash, giving shareholders the choice to increase their shareholding rather than receive a cash payment.
Full Definition
A scrip dividend is a dividend that a company offers to pay in the form of new shares rather than cash, typically giving shareholders the choice between taking the dividend as cash in the usual way or electing to receive additional shares of an equivalent value instead. Companies offer scrip dividends for several reasons: it allows the company to conserve cash while still rewarding shareholders, it can be attractive to shareholders who want to build up their holding without paying dealing costs or a broker's commission, and unlike a straightforward stock split it typically involves issuing new shares specifically in place of a dividend that would otherwise have been paid in cash, calculated using a formula based on the company's recent average share price. For UK tax purposes, HMRC generally treats a scrip dividend as equivalent to a cash dividend for Income Tax purposes -- the shareholder is treated as receiving dividend income equal to the cash value of the dividend they would otherwise have received, which counts towards the GBP 500 dividend allowance and is taxed at the relevant dividend rate (10.75% basic rate, 35.75% higher rate, or 39.35% additional rate for 2026/27) if it exceeds the allowance, even though no cash actually changes hands and the shareholder must fund any resulting tax liability from other resources. For Capital Gains Tax purposes, the value of the scrip dividend used to calculate the Income Tax charge is then treated as the acquisition cost of the new shares, which are added to the shareholder's existing holding in that company (usually into the Section 104 share pool), so that a subsequent disposal of those shares is taxed on the difference between the sale proceeds and this scrip-dividend acquisition cost, alongside the cost of any other shares held in the same pool. Shares received through a scrip dividend within an ISA or SIPP are not subject to Income Tax or Capital Gains Tax at all, in the same way cash dividends and capital gains within those wrappers are sheltered, which is one reason investors building a long-term portfolio inside a tax-efficient wrapper may prefer to take scrip dividends to compound their holding without triggering any personal tax reporting.