Guides / What is a dividend reinvestment plan (DRIP)? How it works and how it is taxed in the UK

What is a dividend reinvestment plan (DRIP)? How it works and how it is taxed in the UK

A dividend reinvestment plan (DRIP) uses your cash dividend to buy more shares in the same company, so the cash is not paid out to you. In the UK a reinvested dividend is still dividend income for tax, unless the shares are held in an ISA.

By MarketFrame · Published 9 October 2026 · Updated 19 October 2026

Short answer: reinvesting changes what happens to the cash. The tax stays the same. Outside an ISA you may owe dividend tax on money you never received in cash, so that bill comes out of other funds. This page is general information, not advice, and share values can fall as well as rise.

What a dividend reinvestment plan is, in plain English

When a company pays a dividend, the cash normally lands in your bank or investment account. With a DRIP, that cash is used to buy more shares in the same company.

HMRC describes a DRIP as an arrangement where shareholders elect, on an ongoing basis, to reinvest all future cash dividends in more shares and not take them in cash. You make the choice once and it keeps running until you stop it. You do not decide again for each dividend.

If you want the basics of dividends first, see dividends on stocks and how they work.

How a DRIP works step by step, from dividend declaration to new shares

You join the plan, or switch on reinvestment where your shares are held, before the deadline the plan sets for a given dividend.
The company declares a dividend and publishes its dates. Shares bought on or after the ex-dividend date do not carry that dividend (our ex-dividend date guide explains the timetable).
The dividend is paid on the payment date.
The plan pools members' cash and either buys shares on the market or subscribes for new shares, then allocates them in proportion to each holding. HMRC's stamp taxes manual describes both methods.
The new shares are added to your holding, and you get a statement showing how many were bought and at what price.

The price on the purchase day decides how many shares your dividend buys. A higher price buys fewer and a lower price buys more, and you do not pick the day. Landsec, for example, publishes the price paid per share on every DRIP purchase date going back to 2014, and it differs each time.

Three things people call a DRIP: company plan, platform service and scrip dividend

The word gets used for three different arrangements. Ask which one you are dealing with, because the terms, deadlines and tax all differ.

A company-run plan. The company offers the plan through a registrar or plan administrator. Landsec's plan is one example. In the company's words, shareholders resident in the UK or EEA can join, the cash dividend "(after deduction of any withholding tax) will be used to buy whole shares as soon as possible after the dividend payment date", and any residual cash is carried forward to the next dividend. The plan is provided by Equiniti Financial Services Limited.

A platform reinvestment service. If you hold shares through an investment platform, the platform may offer its own reinvestment option. It sets the rules, makes the purchase and shows the result in your account. Shares held through a platform follow the platform's terms, and the company's own plan usually cannot be used for them.

A scrip dividend. The company offers you new shares in place of the cash dividend. HMRC calls this a stock dividend. Nobody buys shares on the market for you: the company issues them. The tax treatment is different from a DRIP (see the tax section below).

What reinvesting does and does not change

Shares. You end up with more shares in the same company, and nothing else.
Fractions. Plans that buy only whole shares leave some cash over. Landsec carries it forward to your next dividend. Other plans may pay it out or handle it differently.
Dealing costs. These depend on the plan. Landsec states that its DRIP incurs commission of 1% and stamp duty reserve tax, currently 0.5%. Check the current terms of any plan you look at.
Stamp duty. gov.uk says you usually pay 0.5% when you buy shares, as Stamp Duty Reserve Tax if you buy electronically. It also lists subscribing to a new issue of shares among the cases where you do not pay. So whether a reinvestment attracts it depends on whether existing shares are bought or new ones are issued.
Timing. Shares are bought or issued after the payment date, at the price on that day.

How reinvested dividends are taxed in the UK

HMRC's Company Taxation Manual says DRIP purchases "are not stock dividends and the normal distribution rules apply". The company pays you a cash dividend, which is then spent on shares, so it counts as dividend income.

For the 2026 to 2027 tax year (6 April 2026 to 5 April 2027), gov.uk states:

Dividend allowance: £500 a year. You pay tax only on dividend income above it.
Basic rate: 10.75% on dividends above the allowance.
Higher rate: 35.75%.
Additional rate: 39.35%.

Dividend income that falls within your Personal Allowance is not taxed. gov.uk says that if your dividends exceed both your unused Personal Allowance and your dividend allowance, you need to report them to HMRC. The figures change, so check the gov.uk tax on dividends page for the year you are dealing with.

Scrip dividends follow the stock dividend rules. HMRC's guidance says that for individuals the taxable amount is the "cash equivalent", which is normally the cash dividend you gave up. It uses the market value of the shares instead if the two differ by 15% or more of that market value.

ISAs. gov.uk says you do not pay tax on dividends from shares in an ISA, and you do not pay Capital Gains Tax when you dispose of shares held in an ISA. Our stocks and shares ISA guide explains how the wrapper works.

Capital Gains Tax and records. Each reinvestment is a purchase, so it affects the gain when you later sell. HMRC's HS284 helpsheet explains that shares of the same class in the same company are held together in a "Section 104 holding". You add up their costs, and each share is treated as bought at the same average cost. Landsec states that the base cost of shares bought through its DRIP is the price on the day of purchase plus stamp duty reserve tax and any transaction costs. Keep every statement: the date, the number of shares, the price and the costs.

The "25% dividend rule". People search for this, but there is no standard UK tax rule by that name, and none of the gov.uk or HMRC pages used for this guide mention one. For how dividends are actually taxed, use the gov.uk page above.

Reinvestment risk and concentration: what the term means

Reinvestment risk is the general risk that money paid back to you can only be put back to work on less favourable terms than before. With a DRIP it shows up as the purchase price: every dividend buys at whatever the price is on that day.

Concentration is a separate point. A DRIP puts each dividend back into a company you already own, so over time more of your money depends on one business. Dividends can also be cut or stopped. How much any of this matters depends on your own circumstances, and a regulated adviser can look at those.

Where to find the plan terms and deadlines in a company's own announcements

Go to the company's investor relations or shareholder pages and look for "dividend reinvestment", "DRIP" or "scrip dividend".
Read the dividend announcement itself. If a DRIP or scrip alternative is offered, the announcement normally names it and gives the last date for elections alongside the ex-dividend, record and payment dates.
Open the plan's terms and conditions and the election or application form, which are often hosted by the registrar.
Check who can join, the charges, what happens to leftover cash, how to cancel, and the election deadline for each dividend.

Rely on the company's own wording and dates, not a summary on another site. For a worked example of reading dividend announcements, see how to read Taylor Wimpey's dividend announcements.

How to read dividend news without treating tone as a forecast

Dividend news often comes with a mood: "raised", "held", "cut". MarketFrame reads the UK business news on every FTSE 100 company each morning and publishes a free tone score for each, from -10 (clearly bad news for the company) to +10 (clearly good), with an archive from 30 September 2026. Start at the daily FTSE 100 news hub, or open a company history such as Landsec's coverage.

A tone score describes how the coverage reads. News tone is not a share-price forecast, and it does not tell you whether to reinvest a dividend.

Questions people ask

What is a dividend reinvestment plan?

It is an arrangement where your cash dividend is used to buy more shares in the same company and is not paid to you. HMRC describes it as shareholders electing, on an ongoing basis, to reinvest all future cash dividends in more shares. A company can run one through a plan administrator, and investment platforms may offer their own version.

Do you pay tax on dividends that are reinvested in the UK?

Outside an ISA, usually yes. HMRC's Company Taxation Manual says DRIP purchases are not stock dividends and the normal distribution rules apply, so the dividend is income even though it bought shares. For 6 April 2026 to 5 April 2027 gov.uk gives a £500 dividend allowance and rates of 10.75%, 35.75% and 39.35% above it. You do not pay tax on dividends from shares in an ISA.

What is the difference between a DRIP and a scrip dividend?

In a DRIP the company pays a cash dividend and that cash buys shares for you. In a scrip dividend the company offers new shares in place of the cash dividend. HMRC treats them differently: a scrip dividend is a stock dividend, taxed on its cash equivalent, which is usually the cash dividend you gave up. A DRIP follows the normal dividend rules.

Can you reinvest dividends inside a stocks and shares ISA?

Shares can be held in a stocks and shares ISA, and gov.uk says you do not pay tax on dividends from shares in an ISA. Whether automatic reinvestment is offered depends on the terms of the firm that runs your ISA, so check those terms.

What is reinvestment risk?

It is a general term for the risk that money paid back to you can only be put back to work on less favourable terms than before. With a DRIP, each dividend buys shares at whatever the price is on the purchase day, which you do not choose. The term describes a risk. It does not predict anything.