How are dividend shares taxed?
If cash dividends are paid on shares held in the plan and reinvested in dividend shares, they are not liable to income tax in the hands of the participant, nor is the participant entitled to any tax credits on them. Dividends are not subject to NICs so will not arise on dividends that are reinvested in dividend shares. If dividend shares cease to be subject to the plan before three years after their acquisition on a participant’s behalf, he or she will be liable to income tax on the cash dividend used to acquire those shares. The participant will also be entitled to the appropriate tax credits. In this situation, the trustees must supply the participant with a statement that includes details of the amount of the dividend and the tax credit.
