Dividends from Mutual Funds which are reinvested as units of the fund

Hi Ashanth,

If the company automatically reinvest the dividends then no. If you choose to reinvest you will have already received the payout so these are taxable.

Thank you.

Hello, Thank you for this thread. Regarding dividends - I would appreciate further clarification on the point regarding an investors 'choice to reinvest' and 'automatic reinvestment'. Where ordinary UK shares are held in a share dealing account (operated by a third party) and that share dealing account allows the investor to select an option to either: a) Receive payment of share dividends or, b) Select an option for 'Automatic Dividend Reinvestment' (ADR) Am I correct in interpreting your last response by HMRC Admin 32, that choosing to select option (b) ADR, means the dividend does not incur tax?

Hi Sky Blue,
You are correct.
Thank you 

https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm03120 It says here that "Amounts reinvested are taxed as income accruing to investors in the same way as if they had been distributed.". On what basis is it not taxable if reinvested? Thanks

Hi,

There is no basis where there income would not be taxble. The guidance is stating that you will be taxed in the same way, regardless of whether you receive cash distibutions or the equivalent is re-invested. Both methods are taxed equally, so that there is no befit of one over the other.

Thank you.

Hi Even if you get taxed the same every year, doesn't it mean that you get CGT taxed twice on the dividends in accumulation funds when you come to sell? For example: Year 0 Invest 50,000 in an accumulation fund. Year 1 Dividends of 4,000 that are reinvested but show up on the annual tax certificate as dividend and thus subject to CGT. Year 2 Dividends of 4,000 as above. Year 3 Dividends of 4,000 as above. Year 4 Sale of entire holding (assume no growth) of 62,000 - original cost = 12,000 profit and subject to CGT after allowances. But in a distributing fund: Year 0 Invest 50,000 in a distribution fund. Year 1 Dividends of 4,000 that are reinvested and subject to CGT, but the book cost increases. Year 2 Dividends of 4,000 as above. Year 3 Dividends of 4,000 as above. Year 4 Sale of entire holding (assume no growth) of 62,000 - original cost (62,000) = 0 profit and no CGT due on the sale. Thanks

Hi,

The dividends arising from shares are taxable as income each year, even if the dividend is used to buy more shares.  It is only if the share are sold, they could be liable to capital gains tax.

Thank you.