More than 100,000 shareholders with Santander, the Spanish bank that owns Abbey and Alliance & Leicester, are receiving a tax boost to their latest dividends by taking the distribution in new shares rather than cash.

Investors who have opted for their third-quarter payout in "scrip" form - newly-issued stock - are not subject to the 18 per cent Spanish withholding tax that normally applies to Santander's cash dividends.

The exemption stands to benefit investors holding their shares through individual savings accounts (Isas) and self-invested personal pensions (Sipps), as well as direct shareholders who are basic rate taxpayers.

"In simple terms, these investors are not paying the 18 per cent and have no further tax liability," said Mike Warburton, senior tax partner at Grant Thornton, the accountants.

Unlike most UK banks, Santander has continued to pay dividends through the financial crisis, but even investors in Isa and Sipp tax shelters have been subject to the 18 per cent levy on cash distributions. The scrip offer is being trialled for the bank's latest quarterly payout of €0.12 per share (10.66p). Investors will receive their third-quarter distributions from this week.

Santander is the second most widely-held stock in the UK with 1.8m shareholders and currently yields about 6 per cent.