So why should you consider dividend reinvestment?
Reinvesting dividends is an easy way to get more shares of the funds or company stock you already own and often at a lower cost than buying new ones.
By reinvesting dividends over the long term you can enhance both capital growth and income potential. Dividend reinvestment is not suitable for everyone. If you are in any doubt you, you should seek advice from a qualified professional advisor.
For those looking to invest over the long term and would like to achieve an income, the amount can be enhanced when dividend reinvestment is in place.
How do I reinvest my dividend?
Follow these four steps to confidently set up dividend reinvestment:
- Login to your account
- Go to Accounts and select Dividend Reinvestment
- Tick the box to reinvest all eligible current and future dividends or tick the specific stocks you’d like
- Save the changes
Please note that Automated Dividend reinvestment is only available for TD ISA, Trading and SIPP accounts.
What to consider
Before you jump into reinvesting dividends, take a look at the below points for consideration:
- All sterling dividends from FTSE 350 stocks can be reinvested
- It costs £1.50 each time you reinvest with a minimum investment of £10
Dividend changes following the budget
In the second budget of last year, chancellor George Osborne made changes to the amount of tax paid by people who receive a dividend income.
We want to help you understand the impact of these changes and have pulled together the key points below.
How will the new dividend tax rates affect me?
- From April 2016 the 10% notional tax credit on dividends will be abolished which will mean all investors have a £5,000 dividend tax allowance, which makes life better for most investors seeking an income from their shareholding.
- This move by the chancellor is expected to encourage more people to invest. However, the new tax rate will hit wealthier investors, large scale investors and chief executives with share options.
The dividend rates* will also be amended to:
- 7.5% for basic rate payers (up from an effective rate of 0%)
- 32.5% for higher rate tax payers (up from an effective rate of 25%)
- 38.1% for additional tax rate payers (up from an effective rate of 30.56%)
* This only relates to dividends outside of an ISA or qualifying pension scheme. Income payments within these account types still don’t need to be considered in self-assessment.
If you’re a basic rate tax payer:
- You could be potentially worse-off after you’ve exhausted your full £5,000 dividend tax allowance.
- Individuals who are basic rate payers who receive dividends of more than £5,001 will need to complete self assessment returns from 6th April 2016.
If you’re a higher rate tax payer:
- As an additional or higher rate tax rate payer you may actually be better off, as you now have an extra £5,000 of dividends that won’t be subject to tax.
- However, this move could prove detrimental for those with large positions generating high levels of dividend income.
Regardless of these changes, reinvestment still remains a powerful way to improve investment performance over the longer term.
Please note that share prices and dividend pay-outs in quoted companies fluctuate over time and pay-outs and share prices rises are not guaranteed. We advocate thinking about this strategy over the long term and we would also encourage investing in a portfolio of shares.
Login to your account today and familiarise yourself with dividend reinvestment.
Please note the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future.
If you are uncertain about the tax treatment of the products you should contact HMRC or seek independent tax advice.
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