Scrip Dividends in Share ISA

veloo

I hold paper stocks from a company I worked for. They have declared a dividend, and I have the option to opt for SCRIPs instead of cash. I am not too familiar, but my research shows this could be beneficial as I get shares in lieu of cash dividends. I am still trying to understand the various pros & cons for opting for scrips.

One concern that I have is iii share dealing, with whom I am thinking of opening a Self-Invest ISA, have told me that they do not accept scrips. So, I'm thinking that I should hold on to my paper shares and keep them as-is, instead of transferring them into the iii ISA. What would be your advice?

I did query with iii who said they accept bonus shares, but not scrips, which still leaves me confused as to their status. Should I not be buying such shares (with scrip dividends) within my ISA? Or should be buying only paper certificates for companies offerring scrip dividends?

sabretoothtigger

cash div is taxed 20% and in shares it would not be

Linton

sabretoothtigger wrote: »

cash div is taxed 20% and in shares it would not be

Why do say this? Cash dividends arent taxed for a standard rate taxpayer.

sabretoothtigger

Didnt used to be taxed, Mr brown made it a tax for all dividends even if its a pension fund.

There is no further tax so yea its tax free in that its already been paid, unless you are on a higher rate tax code, Hence a share ISA is for protection from capital gains tax mostly, it cant help with dividends. Maybe bonds not sure

JoeCrystal

veloo wrote: »

I hold paper stocks from a company I worked for. They have declared a dividend, and I have the option to opt for SCRIPs instead of cash. I am not too familiar, but my research shows this could be beneficial as I get shares in lieu of cash dividends. I am still trying to understand the various pros & cons for opting for scrips.

One concern that I have is iii share dealing, with whom I am thinking of opening a Self-Invest ISA, have told me that they do not accept scrips. So, I'm thinking that I could hold on to my paper shares and keep them as-is, instead of transferring into the iii ISA. What would be your advice?

I did query with iii who said they accept bonus shares, but not scrips, which still leaves me confused as to their status. Should I not be buying such shares (with scrip dividends) within my ISA?

Ah... let me try explain this:

I hold paper shares with National Grid and when they declared scrip dividend, I elected to receive scrip dividend. That mean you get new share certificate with amount of shares on it. Likewise, if your dividends is not sufficient large enough to purchase one share then it get carried over to next dividend. That is in National Grid's case.

If you are not reliant on income from your shares and you believe that the shares might go up... then it might be worthwhile as it mean growth in your value of holdings or not. The fact is that you are still relying on value of shares while cash dividend is... solid money.

Also, there is big difference between dividend reinvestment by your broker and getting scrip dividend. One is based on scrip reference price and commission free and another is based on share price on the day dividend get paid and pay commission fee at 1% or similar.

I believe that lot of brokers do not offer scrip dividend although I vaguely recalled that HSBC or one bank broker proudly proclaimed that they can do scrip dividend as if it is something unusual.

I speculated that this is because all nominee holders are with one legal holder of the shares and offering these holders on which option to choose might be too complex. I may be wrong though

Hope this helps!

Cheers

Joe

Stochasticity

Seems to me that:

- Taking the scrip dividend in the form of shares are the better option if you are holding the stock for capital growth.

- Cash is the better option if you are holding the stock for the dividend income it provides you.

- And if you're unsure which you're prioritising, then shares should probably have the edge for tax reasons.

cheerfulcat

Linton wrote: »

Why do say this? Cash dividends arent taxed for a standard rate taxpayer.

Dividends are liable to tax at 10% for a basic rate tax payer and are paid net, with an associated " tax credit ", which is no longer reclaimable within a tax sheltered structure.

It is the gross amount which is added to your other income to calculate your total income so if you are close to the next tax band it is worth considering keeping dividend paying shares in an ISA.



sabretooth -

cash div is taxed 20% and in shares it would not be

The scrip dividend is still taxed as income ( at 10% for basic rate, not 20% ). The cost of the shares bought through the scrip/DRIP scheme is added to your base cost for your holding for CGT purposes.

veloo -

If you were going to buy more shares in the company anyway, then dividend re-investment is a nice way of doing this but I would suggest putting the holding in an ISA and using a broker who offers cheap a cheap dividend re-investment scheme.

ETA - I suggest this because it simplifies things when you come to sell the shares. Each re-investment counts as a share purchase; this can be a bit of a nightmare if there is any sort of reorganisation of the shares, like a consolidation or share split.

veloo

thanks to all. i'm gathering that ISA is more beneficial for capital growth, rather than dividends. as i'm not a frequent trader or a huge investor, i'm not making capital gains of >10k. which leads me to suspect that an ISA might be unsuitable for me.

also, with an ISA any losses can't be offset against my other gains. is this true? so, i see even less of a reason to go for an ISA.

so i end up with my only reason for an ISA, just because i'm a higher rate taxpayer, and just to sheild any profits from tax. i don't have enough capital gains, but i might have at some probable time in future... (let's hope?) make a few 10s of thousands in capital gains every year. so the only reason left is to keep the dividends from being taxed at a higher rate?

now, back to scrips as dividends and their advantages. why would i not want to take cash dividends and buy those stocks when their prices dip lower, rather than let the company buy those shares for me at whatever might be the price at that time? i see no tax advantage, if the value of the scrip shares are added to my income.

also, if i held the shares in demat form in a share dealing service, as opposed to how i hold them now in paper format, could i have request the company to send my scrip shares to me home address, because my broker/share dealer does not accept scrip shares?

cheerfulcat

Hi, veloo,

Holding the shares in a broker's nominee account will still face you with the problem of the scrip shares - they won't be able to offer them. You could look for a broker who offers personal Crest membership, where the holding is in your name, but there aren't many of those.

Don't underestimate the level of accounting you will have to do when in comes to selling the shares; regardless of CGT, you will still have to work out your base cost ( all those re-invested divis ) for the purpose of calculating any gain/loss and this can get quite complicated.

Why don't you want to use an ISA, by the way?

veloo

it's not that i don't want to use an isa. i just want to convince myself of the reasons for using it. this is the first year that i'm actually thinking of an isa, even though i have been a higher rate taxpayer for some years now. i haven't yet sold any shares yet. i buy for the long term, and i can't keep paper certificates in an isa. or can i? the company posts me dividends and scrip share certificates home for free.

perhaps i'm still a newbie investor. i only buy dividend yielding shares, as i find such companies a little bit more reliable with their accounting practices, putting their money where their mouth is. so scrips might seem to be becoming more important for me. most companies with unreliable financial stability sacrifice their dividends, indicating to me that their future is doubtful. a good accountant can make bad accounts look very good on paper. that is what majority of companies do. also, if i had my own stable business, i would be drawing stable amounts increasing each year, or the business would be wound down, non? somebody who promises huge future growth with no shareholder returns (like facebook, perhaps?) is not for me!!! just my thinking... to each his own!

cheerfulcat

veloo, if you are a higher rate tax payer, you are liable to extra tax on the dividends. It just seems mad not to use an ISA.

No, you can't hold certficated shares in an ISA but the Crest account has the same effect - the shares are held in your name and if a scrip scheme is offered by the company whose shares you hold, the broker should be able to hold the scrip shares as well.