Scrip dividends vs DRIPs

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

A scrip dividend gives you new shares issued by the company instead of cash; a DRIP pays the cash dividend and then uses it to buy existing shares on the open market. The distinction is who creates the shares. Scrip shares are minted by the company; DRIP shares are bought from another seller — and that is the root of every difference that follows.

They feel the same to an investor — a dividend arrives as more shares — which is exactly why they get conflated. But a scrip is a decision the board makes and announces in a regulatory filing, while a DRIP is a standing instruction you give your broker or the company registrar. One is a corporate action; the other is plumbing in your account.

Scrip dividends: new shares straight from the company

A scrip dividend, sometimes called a stock dividend, is an offer by the company to give you new shares in place of the cash dividend. The board sets a price for the scrip shares, you elect to take shares instead of cash by a stated deadline, and the company issues them. No money leaves the company, which is part of the appeal to the issuer: it conserves cash while still rewarding shareholders.

Because the shares are newly created, there is normally no broker commission and no 0.5% stamp duty on them. The trade-off is the election: you have to actively choose scrip, by the election date, or you receive cash as the default. Whole shares only are issued, so any fractional entitlement is usually carried forward or paid as a small cash residual.

DRIPs: cash paid, then shares bought on the market

A dividend reinvestment plan pays you the cash dividend in the normal way, then automatically spends it buying more of the same shares on the open market. It is run by your broker or by the company’s registrar, not by the company itself, and it works on almost any holding — including shares of companies that offer no scrip at all.

Since a DRIP buys existing shares, it pays the same dealing costs as any market purchase: commission and 0.5% stamp duty. Those costs come out of the dividend before shares are bought, so a £500 dividend buys slightly less than £500 of shares. The convenience is that it is automatic and universal; the cost is, literally, the cost.

Are scrip dividends and DRIPs taxed the same way?

Both are taxed as dividend income at the normal rates, using the £500 dividend allowance — but the amount taxed, and what happens to the shares afterwards, differ. A scrip dividend is taxed on the cash equivalent of the new shares, as dividend income in the year you receive them, even though no cash reached you. A DRIP is taxed on the cash dividend first, exactly as if you had pocketed it.

The difference that bites later is the capital-gains base cost. For a scrip, the base cost of the new shares is the cash equivalent already taxed as income. For a DRIP, the base cost is what you actually paid on the market — including the commission and stamp duty — and each reinvestment is a fresh acquisition folded into your share pool. Both routes are covered by the same rates set out in the UK dividend tax guide.

Costs, fractions and the paper trail

The practical gap between the two is mostly cost and record-keeping. A scrip avoids dealing costs but demands an election each time and a note of the cash-equivalent value taxed. A DRIP runs itself but leaves a trail of small market purchases, each at its own price, that you eventually need for a capital-gains calculation.

Neither is inherently the better choice — that depends on whether the company offers scrip, on your dealing costs, and on your own tax position. This guide is information, not a recommendation. What it can do is make the mechanics legible, so the costs and the tax are not a surprise.

What the filings show — and what they don’t

Because a scrip is a corporate action, it appears in the company’s regulatory filing — and this registry records it. Of the 13,811 current dividend records compiled here from official UK filings, 730 — about one in nineteen — carried a scrip alternative, offered across 176 separate issuers, from index names like Aviva, BP and Anglo American to a long tail of investment trusts.

A DRIP appears nowhere in that data, and never will. It leaves no regulatory footprint because the company is not doing anything — it pays an ordinary cash dividend, and the reinvestment happens privately inside your account. That asymmetry is the cleanest way to remember the difference: a scrip is something the company announces; a DRIP is something you arrange. Of the scrip offers in this data, 56 also carried an explicit election date — the deadline to choose shares over cash.

Quick answers

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

A scrip issues new shares from the company instead of cash; a DRIP pays cash and then buys existing shares on the market through your broker. Scrip is a company action, a DRIP a personal arrangement.

Are they taxed the same?

Both are dividend income at the normal rates and allowance. A scrip is taxed on the cash equivalent of the shares; a DRIP on the cash dividend, with the bought shares starting their own CGT holding.

Does a scrip dividend avoid dealing costs?

Usually — the shares are new, so there is normally no commission and no stamp duty. A DRIP buys on the market and pays both.

Is a scrip taxable if I got no cash?

Yes. It is taxed on the cash equivalent of the new shares as dividend income, and that figure becomes their base cost for capital gains tax.

Which should I choose?

That depends on whether scrip is offered, your dealing costs and your tax position — this is information, not advice. The tax outcome is broadly similar; the costs and admin differ.

This guide is general information about how scrip dividends and dividend reinvestment plans work and are taxed. It is not tax, investment or legal advice, and it does not recommend any investment or any way of taking a dividend. Tax depends on your individual circumstances and can change — check gov.uk or a qualified adviser before acting.