Dividends in specie: how the shareholder is taxed

Q: Are there other taxes or exceptions to watch?

Property with a mortgage. For Stamp Duty Land Tax, SDLTM04040 explains that the assumption of liability for existing debt is chargeable consideration under paragraph 8 of Schedule 4 to the Finance Act 2003. A shareholder who takes a property subject to a mortgage and becomes liable for the loan may owe Stamp Duty Land Tax on the debt assumed, even though the transfer is a dividend. Demergers. Under section 1076 of the Corporation Tax Act 2010, a transfer by a company to its members of shares in a 75% subsidiary can be an exempt distribution if the conditions in sections 1081 and 1082 (and, for a subsidiary transferring shares, section 1085) are met. Section 1075 says an exempt distribution is not a distribution, so it is not dividend income. If any condition fails, an ordinary dividend in specie of the subsidiary's shares is taxable at market value.

Q: What mistakes come up most often?

Reporting only the book value. The excess of market value is still a distribution and still taxable. No contemporaneous valuation. Without one, the shareholder has nothing to support either the dividend figure or the later base cost. Treating the asset as a capital receipt. Section 383(3) makes it income even if it would otherwise be capital. Ignoring the employment angle. A transfer to a director outside a proper dividend process can be taxed as earnings instead. Overlooking Stamp Duty Land Tax where a mortgaged property is taken over. Paying a lawful dividend in the first place is covered in how to pay dividends legally. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

A dividend paid as an asset rather than cash is taxed on the shareholder as dividend income in the same way as a cash dividend. The amount taxed is the value of what is received: HMRC treats the dividend as the amount declared, usually the asset’s book value, and taxes any excess of market value as a further distribution, so in practice the shareholder is taxed on the asset’s market value. That same market value then becomes the shareholder’s base cost for Capital Gains Tax.

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What does a dividend in specie mean for the person receiving it?

A dividend in specie (also called a dividend in kind) is a dividend that a company satisfies by handing over an asset, such as a property, a car, an investment portfolio or shares in another company, instead of paying money. The company law side, including the distributable profits test and how the dividend is shown in the accounts, is covered in our main guide to dividends in specie. This page looks only at the shareholder.

For income tax, section 383 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) charges income tax on dividends and other distributions of a UK resident company, and section 383(3) says it does not matter that a distribution would otherwise be capital. HMRC’s Savings and Investment Manual at SAIM5010 describes a distribution as anything a company gives to a shareholder without full payment in return, and says a dividend is usually in cash but may also be in kind. The person taxed is the person to whom the distribution is made or who receives or is entitled to it (section 385).

What value is the shareholder taxed on?

Section 384 of ITTOIA 2005 charges tax on the amount or value of the dividends paid and other distributions made in the tax year. For a non cash dividend the question is what that value is.

HMRC’s view at CTM15200 is that a dividend in specie is usually declared in a stated amount, to be satisfied by transferring assets, and the dividend equals that stated amount. Commonly the stated amount is the book value of the asset in the company’s balance sheet. If the market value of the asset is greater, the excess is a further distribution under section 1000(1) of the Corporation Tax Act 2010, as explained at CTM15250. Where a company transfers an asset without stating any amount, the dividend is taken as the book value and the same treatment applies to any excess.

CTM15250 measures a transfer of assets to a member as the market value of the asset received less the market value of any new consideration the member gives. The practical result for an individual is:

the declared dividend (often book value) is dividend income; and
any excess of market value over that figure is also a distribution, so also dividend income.

Taken together, a shareholder who gives nothing in return is taxed on the full market value of the asset. Declaring the dividend at a low book value does not reduce the shareholder’s income tax.

Who decides the market value?

The shareholder needs a defensible valuation at the date the dividend is paid. For property, CTM15330 says HMRC’s officers ask the Valuation Office Agency to advise where an interest in UK property is transferred to or from a company giving rise to a distribution, and the request includes any tenancy the member already held, because a sitting tenancy can affect value. For unquoted shares and other assets, CTM15330 points to HMRC’s shares and assets valuation guidance. A professional valuation obtained at the time is the best protection if HMRC later opens an enquiry.

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In which tax year is the dividend taxed?

Dividend income is taxed in the tax year in which the dividend is paid (section 384). HMRC’s guidance at CTM15205 explains that a dividend is paid when it becomes due and payable, and that a dividend is not paid until the shareholder receives it or it is unreservedly placed at their disposal. A final dividend properly declared without a later payment date is an immediately enforceable debt, whereas an interim dividend can be varied or rescinded by the directors until it is actually paid. For a dividend in specie, the timing of the board or shareholder resolution and of the transfer of the asset should therefore be documented, particularly if it falls near 5 April.

What rates and allowances apply?

A dividend in specie is taxed exactly like a cash dividend. For 2026 to 2027 GOV.UK gives a dividend allowance of £500, and dividend rates on income above the allowance of 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. Dividends are added on top of other income to decide which band they fall into, so a single large asset can push much of the value into the higher or additional rate. The rates are explained further in dividend allowance and tax rates.

The shareholder must tell HMRC. GOV.UK says dividend income over £10,000 requires a Self Assessment tax return, and people who do not normally file must register by 5 October after the end of the tax year in which they received the income. Our guide to declaring dividends to HMRC covers the reporting steps.

A dividend in specie produces a tax bill but no money to pay it with, so shareholders often take a separate cash dividend to meet the liability.

What if the shareholder is also a director or employee?

In an owner managed company the shareholder is often also a director. CTM15290 says that where a company transfers an asset at less than market value to someone who is both a member and an employee or director, the treatment depends on the capacity in which they received it. If the value flows from the employment, it is taxed as employment income under the Income Tax (Earnings and Pensions) Act 2003, with National Insurance to consider, and the distribution rules do not apply. If it is received as a member, it is a distribution taxed as dividend income.

A properly declared dividend, paid to shareholders in proportion to their shares under the articles, is strong evidence that the asset was received in the capacity of shareholder. A transfer to one director alone, without a dividend resolution, invites the argument that it was a benefit of the employment.

What is the shareholder’s base cost for capital gains?

For Capital Gains Tax, HMRC’s Capital Gains Manual at CG14530 lists a distribution of assets by a company to its shareholders as a transaction where the market value rule applies under sections 17 and 18 of the Taxation of Chargeable Gains Act 1992. The company is treated as disposing of the asset at market value, and the same figure is used as the acquisition cost of the person who receives it.

So a shareholder who later sells the asset works out their gain from the market value at the date of the dividend, not from the company’s original cost or book value. The valuation report therefore supports both the dividend figure and the later gain. The current rates are in Capital Gains Tax rates.

Are there other taxes or exceptions to watch?

Property with a mortgage. For Stamp Duty Land Tax, SDLTM04040 explains that the assumption of liability for existing debt is chargeable consideration under paragraph 8 of Schedule 4 to the Finance Act 2003. A shareholder who takes a property subject to a mortgage and becomes liable for the loan may owe Stamp Duty Land Tax on the debt assumed, even though the transfer is a dividend.
Demergers. Under section 1076 of the Corporation Tax Act 2010, a transfer by a company to its members of shares in a 75% subsidiary can be an exempt distribution if the conditions in sections 1081 and 1082 (and, for a subsidiary transferring shares, section 1085) are met. Section 1075 says an exempt distribution is not a distribution, so it is not dividend income. If any condition fails, an ordinary dividend in specie of the subsidiary’s shares is taxable at market value.

How might the figures work?

Illustration only. Ella owns all the shares in her trading company and has a salary of £30,000 in 2026 to 2027. The company declares a dividend in specie of an investment portfolio. The portfolio is in the balance sheet at £40,000 but its market value on the day of transfer is £55,000. Ella gives nothing in return.

Step	Amount
Declared dividend (book value)	£40,000
Excess of market value, a further distribution	£15,000
Total dividend income	£55,000
Basic rate band left after salary (£37,700 less £17,430)	£20,270
First £500 of dividends at 0%	£0
Next £19,770 at 10.75%	£2,125.28
Remaining £34,730 at 35.75%	£12,415.98
Tax on the dividend in specie	£14,541.26

Ella receives no cash but owes over £14,500 of income tax. If she sells the portfolio later, her base cost is £55,000.

What mistakes come up most often?

Reporting only the book value. The excess of market value is still a distribution and still taxable.
No contemporaneous valuation. Without one, the shareholder has nothing to support either the dividend figure or the later base cost.
Treating the asset as a capital receipt. Section 383(3) makes it income even if it would otherwise be capital.
Ignoring the employment angle. A transfer to a director outside a proper dividend process can be taxed as earnings instead.
Overlooking Stamp Duty Land Tax where a mortgaged property is taken over. Paying a lawful dividend in the first place is covered in how to pay dividends legally.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.