Capital Gains when Dividends are automatically Reinvested

I have an Interactive Investor account where all dividends are automatically reinvested. Do I need to declare these as dividend and so pay tax on them...? If so would the tax not be an allowable cost come selling the shares for capital gains tax..?

Hi Brent Sandiford,
If the company pays out cash dividends, you will owe taxes on those payments even if you decide to reinvest the cash received.
If however, the company reinvests your dividends to purchase additional shares, you will not owe taxes until you sell those shares. 
At that point, you will pay Capital Gains Taxes on the difference between the price you paid for the shares and the price you sold them for.                  Any income tax already paid is not an allowable expense when working out Capital Gains Tax. 
Thank you. 

 

Just so i understand; I use Interactive Investor as my dealing platform and they pay dividends into my account. Then they buy shares equal to the amount of dividend automatically. So this would be subject to Tax? I also hold paper shares, say in SHELL PLC, issued via Equitini and they issue share certificates. So this WOULNT be subject to tax?

Hi Brent Sandiford
Yes as they have paid out the dividend. for the paper shares.
If they pay out any dividends to you, yes you need to declare the dividend.
Thank you. 

I have invested in some mutual funds with Interactive Brokers account and the monthly dividends distributed were automatically reinvested to purchase additional unit. I have no option to choose receiving in cash. My questions are : - for these automatic reinvested dividend, I DO NOT need to declare as dividend income - Upon disposal, the Gain will be the Disposal Proceed minus the initial cost of investment (excluding reinvested dividend amount) and incidental costs, am I correct - In last year, I have reported these automatic reinvested dividend as dividend income and paid tax on them. Is it OK if I start NOT declare the dividend from this years onwards? - Or do I have to write to HMRC for correction of past year?

Hi,
That is correct.
If you filed your return online you can amend the 22/23 return to correct the figure.
Going forward if automatlically reinvested by the company then you do not declare them.
Thank you.