Autumn statement document sets cat among pigeons on listed companies’ returns of capital

Autumn statement document sets cat among pigeons on listed companies’ returns of capital

Wed 03 Dec 2014

A tax change that the Chancellor didn’t mention in the House of Commons today will increase tax on shareholders of quoted companies that make a return of capital or pay a special dividend.  These groups often give shareholders the choice of receiving the cash in income or capital form.  Many shareholders don’t use their annual CGT allowance and opting for capital can make their receipt tax free.

Companies are able to offer this choice by issuing each shareholder with a new share – typically called a “B” share – and arranging for the share to be immediately bought back from them.  A fairly recent and very large one was Vodafone using a B share scheme to return £14bn in cash following the sale of its holding in Verizon.  “B” share schemes will be ineffective from April 2015.  The receipt will be taxed as income.  An upcoming one that may be caught by the change is Standard Life which has proposed using a B share scheme to return proceeds of sale of their Canadian business.

Shareholders may be able to mitigate the impact of this proposed tax change that was not actually announced in the Chancellor’s Autumn Statement speech by selling their shares before a special dividend is paid and buying them back afterwards.  But this will be at a cost.  Shareholders will certainly suffer the costs of selling and buying plus stamp duty reserve tax on the repurchase, and will have to take great care they do not trigger a CGT charge on the disposal.

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *