Are re-invested dividends taxable?
Are re-invested dividends taxable?
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Hereward

Original Poster:

5,128 posts

260 months

Monday 7th May 2012
quotequote all
I invest a small monthly amount into an Investment Trust and since day one I have specified that the dividend is automatically reinvested to buy more shares.

Am I right in thinking that the dividend is not subject to tax since I am simply reinvesting it, not taking it as income? The divident value is trivial; about 600 quid in 2011.

I need to complete a tax return for the first time so just want to be sure I'm not missing anything. Thanks.

raptor600

1,356 posts

176 months

Monday 7th May 2012
quotequote all
No. You have to declare it and it is taxable.

You are taking it as income - then choosing to reinvest it.

If you are a lower rate tax payer you effectively will have no extra tax to pay. If you are a 40% tax payer you will have tax around 25% (off the top of my head) to pay.

Of course, if it is in an ISA then this is not applicable.

jeff m2

2,060 posts

181 months

Monday 7th May 2012
quotequote all
Don't forget to adjust your cost basis (for CG)

sumo69

2,164 posts

250 months

Tuesday 8th May 2012
quotequote all
raptor600 said:
No. You have to declare it and it is taxable.

You are taking it as income - then choosing to reinvest it.

If you are a lower rate tax payer you effectively will have no extra tax to pay. If you are a 40% tax payer you will have tax around 25% (off the top of my head) to pay.

Of course, if it is in an ISA then this is not applicable.
+1 - its treated the same as if you had taken a normal cash dividend and yes its 25% of the amount reinvested if you are a 40% taxpayer.

David

TFP

202 posts

245 months

Tuesday 8th May 2012
quotequote all
sumo69 said:
raptor600 said:
No. You have to declare it and it is taxable.

You are taking it as income - then choosing to reinvest it.

If you are a lower rate tax payer you effectively will have no extra tax to pay. If you are a 40% tax payer you will have tax around 25% (off the top of my head) to pay.

Of course, if it is in an ISA then this is not applicable.
+1 - its treated the same as if you had taken a normal cash dividend and yes its 25% of the amount reinvested if you are a 40% taxpayer.

David
Right in principle, but wrong on rates.

Higher rate tax payer's total liability would be 32.5% - so after 10% dividend tax credit this is an additional 22.5%

Additional rate tax payer's total liability would be 42.5% - so after 10% dividend tax credit this is an additional 32.5%


Toro Rosso

187 posts

185 months

Tuesday 8th May 2012
quotequote all
TFP said:
Right in principle, but wrong on rates.

Higher rate tax payer's total liability would be 32.5% - so after 10% dividend tax credit this is an additional 22.5%

Additional rate tax payer's total liability would be 42.5% - so after 10% dividend tax credit this is an additional 32.5%
Except that I would suggest he was referring to 25% of the net dividend - giving you 22.5% of the gross.

Tim330

1,338 posts

242 months

Tuesday 8th May 2012
quotequote all
On a £1000 dividend it breaks down as follows

net dividend £900 90%
tax credit £100 10%
gross dividend £1000 100%

basic and non tax payers would receive £900 with all tax fully paid.

A higher rate tax payer would be liable for additional tax as follows

Gross dividend £1000
tax @ 32.5% = £325
less tax credit of £100
net additional income tax due = £225 (=25% of net dividend)
net dividend after tax = £675 (75% of net dividend)


Hereward

Original Poster:

5,128 posts

260 months

Tuesday 8th May 2012
quotequote all
Thanks for the replies. I will confess all to HMRC.

So if my Investment Trust was in an ISA wrapper would that make the dividend tax-free?

Toro Rosso

187 posts

185 months

Wednesday 9th May 2012
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Hereward said:
Thanks for the replies. I will confess all to HMRC.

So if my Investment Trust was in an ISA wrapper would that make the dividend tax-free?
Yes, but it may need some planning to get it into one depending on the value etc.