I have been informed Standard Life share dividends may, as an option, be received as a share reinvestment transaction rather than as a cash dividend. Is this so?

I can see why this might be attractive to certain investors if done at reasonable cost and would appeal to me. How exactly does this reinvestment facility work, what are the associated costs and what might be the advantages or disadvantages that you see with the service?

Also, do many other market quoted companies offer a share dividend reinvestment facility?

Mr P.H., email

A dividend reinvestment plan (DRIP) is a common option for shareholders in listed companies. In Ireland, the best known group offering such a service is Vodafone. As far as I can assess, it has been an option at Standard Life for many years.

As you say, it has certain attractions for investors. There are, of course, shareholders who value dividend income as a source of cash to fund their lifestyle but others are holding the stock for the capital appreciation rather than their dividend yield.

In such cases, where you have assessed the stock as a longer-term element of your portfolio, it can make sense to reinvest the dividend in more shares of the business.

You will have to choose one or the other – you cannot elect to invest only part of your dividend in a reinvestment plan and take the rest as cash. I assume the cost of administering such an arrangement is seen as prohibitive.

How does it work?

When the dividend is declared, the DRIP buys shares in the market at the best price available (for all DRIP investors as a group, not individually). Your dividend will be divided by the market price for the shares to determine how many additional shares you receive, rounding down to the nearest whole number. The costs are then also set against your dividend. If there is any amount remaining in the dividend, it is carried forward to the next dividend date.

The important thing to note with a DRIP is its difference with a scrip dividend. In the former, the company or its agent is using your cash dividend to buy shares in the market: in the latter, the company itself is issuing new shares to cover the dividend.

You’ll find a very clearly written set of terms and conditions governing the Standard Life DRIP at iti.ms/1v92BVs and it includes a breakdown of costs.

First, you will be liable to broker’s commission for buying the shares in the market. This is levied at 0.5 per cent of the value of the transaction, with a minimum commission of £1.25.

In addition, you will pay stamp duty on the share purchase, also at 0.5 per cent.

In terms of tax, it makes no difference whether you take your dividend in cash or as shares – either way, you must return it for income tax at your marginal rate.

In the case of Irish-listed business, the company will already have imposed “withholding tax” of 20 per cent – equating to the standard rate of income tax – on your gross dividend. If you pay tax at the higher marginal rate, you will receive a tax credit for any withholding tax imposed on the dividend. For UK-based companies, such as Standard Life, the dividend you receive will be paid to you net of a 10 per cent notionaltax credit. Under current Irish law, you cannot reclaim that tax credit.

However, the Irish authorities will tax you not on the gross dividend but on the net dividend received.

The dividend will also be liable for the universal social charge assuming you are above the USC threshold of €12,012 – a figure that has increased this year from the €10,036 that previously applied.

Finally, if you have “unearned income” – income from sources other than your employment, including share dividends – of more than €3,174, you will also be liable to PRSI at 4 per cent on the dividend.

Tracking down my Standard Life windfall

Both myself and my wife have had policies with Standard Life for many years.We did not receive any shares in 2006.

I tried to get an answer from Standard Life to no avail.What are my options?

Mr K.G., Dublin

This is all very odd. You say you can’t get an answer from Standard Life and they say they are taking a series of steps even now to try to reunite people with what they call “unclaimed assets”.

If it’s any consolation, you are not unique – apparently around 73,000 people have yet to claim their entitlement under the group’s 2006 de-mutualisation, although the company says it has managed to track down more than 200,000 people who, for one reason or another, did not claim their windfall at the time.

The aggregate unclaimed windfall – £113 million as of September last year – is now held in something called an Unclaimed Assets Trust.

The good news is that Standard Life is still looking for you, and others, via their registrar, Capita.

But you want to get moving to claim any cash and shares due to you.

The company has announced that the Unclaimed Assets Trust will close on July 9th, 2016.

It says it is running a final “tracing programme”, with Capita making initial contact with people by sending letters notifying them of ways to claim.

Of course, if they haven’t managed to track you down at your current address in the past eight-and-a-half years, it’s entirely likely this latest tracing programme will also pass you by, so I suggest, as a new year’s resolution, that you contact Capita Asset Services at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 9ZY, England, or call them on 0044-203-4716853.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.