Standard Life ‘return of capital’ deadline looms

I am entitled to a return of value (worth around €400) on Standard Life shares and need to elect whether it is taxed as income or capital gains.

I work full-time and my salary puts me in the 40 per cent income tax band. With capital gains at 41 per cent, it doesn’t seem to make much difference which I choose.

However, I do have some small investments, some of which are losing money at the moment and some which are in profit, and it is always possible that I will exit these during the year for whatever reason.

In that scenario, am I better choosing the capital gains tax option, so that potentially I may be able to offset the return of value against losses during 2015 or are there other considerations to be taken into account?

Ms MC, email

The letters from Standard Life on the subject of what they call their “return of capital” are clearly dropping through the doors of the company’s estimated 60,000 Irish shareholders as I received a number of letters this week on the subject.

There are two elements here: first the company is giving money back to shareholders following the sale of its Canadian business; second it is consolidating its shares.

For many shareholders in Ireland, this is familiar territory. Several companies have undertaken similar exercises in recent years, most recently Vodafone.

There are a few things to go through and I can tell from your question that there is some confusion out there. The most important thing is that shareholders must not ignore the letters coming to them on this return of capital and they must respond well before the deadline of March 18th (just over two weeks away) unless they really want to pay tax unnecessarily.

First, let’s get rid of misinformation. Despite a lot of comment in various media, this is not a windfall. The Canadian business was part of the value of the company (and priced into the shares). What Standard Life is doing is giving those sale proceeds to shareholders and reducing the number of shares in issue so that the share price does not fall. It intends that you neither gain nor lose any of your investment, but simply that some of it is cashed in.

So what’s happening? The company is giving shareholders 73 pence sterling for every share they own in Standard Life as of March 13th at 6pm. It is then consolidating shares so that for every 11 shares in the company you now own, you will own nine after the return of capital is complete.

You have four options: elect to receive the money in B shares, in C shares, in a mixture of both or, finally and ill-advisedly, do nothing.

The term “shares” in relation to B and C shares is a little misleading as they are not shares in the usual sense; you cannot trade them and you cannot retain them. They are simply a legal construct and both B and C shares will be converted into cash which will then be paid to shareholders.

The difference is that people who opt for C shares will see that money treated as a special dividend and therefore liable to income tax at their marginal rate (up to 41 per cent – plus USC and possibly PRSI).

Those electing for B shares will have the money treated as capital. On sums like your €400, there will be no tax due at all (assuming you have no other capital gains this year) as you are entitled to make a capital gain of up to €1,270 in any tax year without becoming liable to capital gains tax. So you will not have to consider making other asset sales to create offsetting losses.

The average Standard Life shareholder, I gather, has around 675 shares and will have a return of capital of around €675, so capital gains tax should not apply for most. As a result, for the vast majority of people, the B option is probably the better choice.

You can, unusually, choose to have some of your shares treated under the B option and others under the C plan, but I see no advantage here for you.

You can also do nothing but then you will be subject to the default option; if you do nothing in Ireland – and yes, there are different defaults for people living in certain other jurisdictions – you will be deemed to have chosen the C option where the money will be treated as a dividend and subject to income tax. This would not be clever but – at least until a Revenue “amnesty” in the last budget – it was the fate that befell thousands of Vodafone shareholders who either did nothing at all, left it too late to respond or struggled with postal issues.

You can make your choice online at www.standardlifeshareportal.com or by mail but remember to allow plenty of time for your letter to get to the UK address of Capita, the share registrar managing the operation for Standard Life. The deadline is 4.30pm on March 18th and these things are not flexible. Do remember if posting that St Patrick’s weekend will slow things down.

For those who would have a capital gains tax liability, the rate of tax is currently 33 per cent, not 41 per cent as you state in your letter. I know there is a higher rate of CGT (40 per cent) that applies on the sale of certain life assurance policies but that is not the situation here. The 41 per cent you refer to is, in fact, the higher rate of income tax in Ireland, not 40 per cent.

Finally, if you are one of the 73,000 or so people who has still not claimed your free Standard Life shares from the group’s 2006 flotation, you really do need to get moving, for two reasons. First, Standard Life has announced that the unclaimed assets trust, where those shares are held, will close on July 9th, 2016, after which you might lose out altogether.

More urgently, if you have not claimed the shares, you will not be in a position to elect how to receive the return of capital. In that case, it will be treated as a special dividend and liable to income tax when you eventually claim the shares.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice