Book cost confusion regarding dividend reinvestment

sanfairyanne

I'm a bit confused. If 100 shares were bought at £1 they have a book cost of £100. If over the course of 10 years the company pays out 10 shares via dividend reinvestment the value of those dividend shares would need to be known on the pay date in order to work out the full book cost of the holding. I suppose though, if I don't know this figure I could just write down the book cost of the div' shares as £1. That would keep me away from trouble with the tax man when they are eventually sold. Is this ok? I think I can see a problem if the stock price dropped below £1.

Sorry for the novice question, and as always many thanks in advance. 

Thrugelmir

The company's own website will have this historic dividend data.  Normally to be found in the Investor Relations section. 

sanfairyanne

Ok I appreciate that, thank you.

eskbanker

sanfairyanne said:

I'm a bit confused. If 100 shares were bought at £1 they have a book cost of £100. If over the course of 10 years the company pays out 10 shares via dividend reinvestment the value of those dividend shares would need to be known on the pay date in order to work out the full book cost of the holding. I suppose though, if I don't know this figure I could just write down the book cost of the div' shares as £1. That would keep me away from trouble with the tax man when they are eventually sold. Is this ok? I think I can see a problem if the stock price dropped below £1.

If you're holding shares in an unwrapped account then for tax purposes you're obliged to keep records not just of purchases and sales but also dividends paid and reinvested - the broker/platform via which you hold these should issue the relevant documentation, and it will often be kept available online for subsequent retrieval, so you shouldn't need to make it up?

sanfairyanne

eskbanker said:

sanfairyanne said:

I'm a bit confused. If 100 shares were bought at £1 they have a book cost of £100. If over the course of 10 years the company pays out 10 shares via dividend reinvestment the value of those dividend shares would need to be known on the pay date in order to work out the full book cost of the holding. I suppose though, if I don't know this figure I could just write down the book cost of the div' shares as £1. That would keep me away from trouble with the tax man when they are eventually sold. Is this ok? I think I can see a problem if the stock price dropped below £1.

If you're holding shares in an unwrapped account then for tax purposes you're obliged to keep records not just of purchases and sales but also dividends paid and reinvested - the broker/platform via which you hold these should issue the relevant documentation, and it will often be kept available online for subsequent retrieval, so you shouldn't need to make it up?

I assume by 'unwrapped account' you mean not an ISA?

In that case, yes it is an unwrapped account.

I'm sorting old share certificates, some of which are lost. In many cases I have dividend notification slips, but not always. I'm trying to transfer them to Lloyds who told me that if I didn't know the book cost I could just leave that part blank. This of course simplifies everything - until you go to sell the shares and realise you have to pay CGT on the entire sale rather than just the difference between book cost, dividends and sale price. I don't want to get in trouble but it's a hell of a job trying to work out the price of dividends when the dividend notification slip is lost. 

sanfairyanne

I think I understand the situation. If I may use this example:

100 shares bought for £1 = book cost of £100.
During the first year you receive 1 dividend valued at £1
During the second year you receive 1 dividend valued at £1.50

At the third year you sell the stock. The book cost is £102.50. So if you sell for £150 you have made £48.50 in taxable gains. 

[Deleted User]

Hi,

sorry, you've lost me.

So you have had £2.50 in dividends, what has happened to share price in that time?

sanfairyanne

[Deleted User] said:

Hi,

sorry, you've lost me.

So you have had £2.50 in dividends, what has happened to share price in that time?

In my example the shares rose to a total of £150, meaning I made a £48.50 taxable gain.

Thrugelmir

If the individual shares holdings are of low value. Might well be worth progressively liquidatating. Then consolidating into a  broader collective investment within a wrapper. Would save a lot of hassle. 

sanfairyanne

Thrugelmir said:

If the individual shares holdings are of low value. Might well be worth progressively liquidatating. Then consolidating into a  broader collective investment within a wrapper. Would save a lot of hassle. 

This is the plan, every year sell as much stock as possible without having to pay CGT, then put the investment into ISA. I believe I'm right in saying this is called 'Bed and ISA'.