Standard Life options when your return is over CGT exemption limit

In relation to the Standard Life return of capital, my situation is a bit different to the one you discussed last week. I am entitled to a return of value worth about €5,500 on my Standard Life shares. I am unemployed with no income and so no income tax liability.

I am also carrying a huge loss on bank shares that I bought before the crash that I have not crystallised yet. Should I opt for the B shares and sell some bank shares for a loss of, say €4,300 and utilise my capital gains allowance of €1,270 or are there any other options I should be looking at?

Mr A.B., email

While you will face no income tax charge in Ireland, you should bear in mind that UK dividends are paid net of a 10 per cent tax withheld. In the UK, there is an offsetting tax credit but that is not available to Irish residents. Instead, what Revenue does is consider the actual dividend received as the gross dividend.

In your case, assuming the €5,500 does not bring you above a level where income tax would kick in, you will face no Irish income tax but would not get back the 10 per cent deducted at source in the UK.

Opting to take the payment as capital means there is no deduction at source in the UK and the full return of capital comes to you. As you note, the €5,500 is well above the annual capital gains exemption limit of €1,270 and would, ordinarily, leave you liable to capital gains tax of 33 per cent on €4,230.

However, you can, as you suggest, crystallise losses on other shares, such as those in the banks in your case, to offset that and ensure your net gain is at or below the €1,270 limit. Similarly, losses already realised by previous sales this year or in previous years that have not yet been offset by gains elsewhere can be used to reduce or eliminate any CGT liability.

Are Standard Life investors gaining? I'm a Standard Life shareholder and received information re: return of share value (73p stg a share) resulting from Standard Life selling its Canadian business. Also a share capital consolidation will take place where nine shares will be given for every 11 shares held at present. It seems also that the final dividend for 2014 will be base on the new shareholding rather than the old. Are shareholders really gaining from the new arrangement?

Mr P.F., email

There has been a common misconception, possibly encouraged by the phrase “returning value to our shareholders” in the company’s own documentation, that this is some form of windfall. It’s not and, to be fair to Standard Life, they haven’t said that. The point of the entire exercise is that the value of your shareholding (the cash payout plus your remaining reduced number of shares) should be the same beforehand and afterwards.

From the company’s point of view, the value of the Canadian business was priced into its shares. If it did nothing and simply gave back the money to shareholders, it is certain that the market would price down the shares to reflect the loss of value. Standard Life hopes that the nine new shares for 11 existing shares held will see the share price effectively held stable.

That might or might not happen. Market pricing is not quite as structured as that but in the medium to long term it is not an unreasonable expectation for the company, all other things being equal.

It is important for shareholders to remember that they do have a say here. The “return of value/return of capital” and the share consolidation both require shareholder approval at a general meeting of shareholders which is being held in Edinburgh on March 13th – this Friday.

If you cannot make this meeting – unlikely for most Irish shareholders – you can cast your vote by proxy, telling the chairman or someone else how you wish to vote. However, if posting details of your voting form you will need to have it with Standard Life or its share registrar by 6pm tomorrow, March 11th. Possibly easier, you can vote by proxy online at standardlifeshareportal.com.

In any case, especially if posting back your papers, you will need to decide how you wish to receive any payout that might be approved by the meeting. That “election form” must be back with the company by 4.30pm on March 18th. That’s next Wednesday and St Patrick’s Day comes in the meantime, possibly disrupting postal services. If you leave it until after the vote on the issue is confirmed at the shareholders’ meeting, you could well be too late and find yourself with an unwelcome tax bill. Again, of course, you can indicate your choice of receiving the “return of capital” as income or capital on the company’s investor share portal.

Options on SL shares above CGT threshold I am entitled to a return of value (worth about €4,000) on Standard Life shares and need to elect whether it is taxed as income or capital gains. I pay income tax at 41 per cent. Please advise me if I should take the full value of the return as a capital gain as my return will exceed the € 1,270 capital gains tax exemption.

Mr A.F., email

As you pay tax at the full 41 per cent rate, any payment by way of special dividend (C shares) from Standard Life will be liable to tax at that rate plus universal social charge and, possibly, PRSI.

If you opt for the capital option (B shares), you will, as you say, exceed the annual capital gains tax exemption of €1,270 and will pay 33 per cent on anything above that level,unless you have offsetting capital losses (see above).

Even without any offset, the tax under the capital option for you is lower than what you would pay on the income option.

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