Tax on re-invested dividends - Community Forum (2024)

Hi - I have a company long term incentive plan (not a SIP), in which shares are allocated annually with a 3 yr vesting period. Tax/NI is automatically paid on allocation by withholding a portion of the shares. However, once vested I start to receive dividend payments, which are automatically re-invested by the company to buy further shares. I have found conflicting information on various websites, some of which suggest these reinvested dividends are immediately subject to income tax, and others that say they are only subject to tax once the shares are sold. Can you please confirm which is correct? Thanks.

Can I seek a clarification on this? I have a very similar U.K. company share scheme, where vested stocks have tax deducted and then sit in a company operated ‘Share Plan Account’. These shares are then free of restrictions and can be held or sold. We are given the choice to either have dividends automatically reinvested by the company to buy more shares or to take the dividends in cash. Either option can be chosen and changed at any time. Do I I understand correctly that this means these dividends will be liable for income tax (dividend tax) regardless of whether I select the reinvestment or cash option?

HiJinster768,
That is correct.
Thank you.

The responses from 'HMRC Admin 32' & 'HMRC Admin 20' appear to contradict - noting the questions from 'Mort1968' and 'Jinster768' are essential the same - i.e. an individual company employee subscribing to a company share plan where the dividends are reinvested by the company, on behalf of the employee. How is this scenario different to "if the business reinvests its dividends to buy more shares, it won’t have to pay taxes until they sell them" ( the company/business reinvests on behalf of the employee, surely?). I have been researching this topic for a while and continue to read contradictory statements. Lloyds bank (through Equiniti Financial Services) operates a 'DRIP' - are these dividends subject to tax?

Hittfn2024,
Please have a look at the guidance here:
Employment Related Securities Manual
This covers resrticted stock units (RSU).
Thank you.