Standard Life windfall success brings tax bill

Some time ago, I received free shares from Standard Life. If I sell these, I will pay capital gains tax on the whole proceeds less the personal allowance. Can I transfer these shares equally between my spouse, three children and I so that their CGT personal allowance will lessen the tax take.

Mr G.MacR., Mayo

I'm assuming your shares date back to Standard Life's demutualisation back in 2006, along with any loyalty shares issued since to people who did not sell their windfall stock.

It has been a good investment with the shares currently trading about 85 per cent ahead of their 230 pence a share flotation price. And, of course, you’ll be line for a further windfall following the group’s sale of its Canadian business, which is due to be completed early next year.

So that’s all good news. On the downside, assuming that all of your shareholding comprises the free shares, you will pay capital gains tax on the full sale price, minus any selling costs and, as you say, the personal exemption of €1,270.

There is nothing to stop you transferring some of those shares to other family members to avoid future gains but it will not serve to ease the burden on you of tax on gains made to date. You would be deemed the owner until the time of transfer and would be liable for any gains to that date.

A further issue is that selling or transferring the stock now may affect the benefit from the sale of the Canadian business. You would also pay stamp duty on any transfer using a stock transfer form from your broker.

The only way that I know of shares being passed to family without any capital gains tax burden applying is in the event of the shareholder’s death – in which case the shares pass to the estate and the capital gains tax liability to that date lapses.

Crunching numbers on Fyffes base cost I would be awfully grateful if you would do my number crunching for me regarding the the value of my Fyffes shares. I simply cannot get my head around it. I bought 10,305 Fyffes shares in 2002 at €1.25 each. I assume this was now broken up into 10,305 shares in Fyffes, 10,305 in Total Produce and 10,305 in Blackrock. I sold all Fyffes shares in 2013 for €7,706.60 and Total Produce for €7,905.87. Can you work out base cost for Fyffes, Total Produce and Blackrock?

Ms K. O’G., email

I am going to go on the basis of the figures above, although your mail did include two slightly contradictory figures. Back in 2002, you bought 10,305 Fyffes shares. You assume correctly that, following the various splits, you would have had 10,305 shares in Fyffes still, but also 10,305 shares in Blackrock International Land and 10,305 shares in Total Produce. The initial purchase cost, you say, was €1.25 a share, so your total outlay before broker charges was €12,881.25.

It is tempting to use simple percentages to work out the base cost of each – ie, what percentage of the original Fyffes purchase price is allocated to each share. The rounded percentages are: 42 per cent of the original purchase cost is allocated for your remaining Fyffes shares; 35 per cent for Total Produce and 22 per cent for Blackrock international Land.

And while the figures are fractionally out from the precision you will get by using the more complicated Revenue formula, the difference is so small that I cannot see the tax authorities getting too picky on the difference.

To be absolutely precise (and allowing for the fact that the Revenue formula does allow for rounding up or down of the figures), of your original €1,25 a share purchase price, 53 cent (42.4 per cent) is the new base cost of each remaining Fyffes share, 44 cent (35.2 per cent) is the base cost of the Total Produce stock, and 28 cent (22.4 per cent) is the base cost of the Blackrock shares.

Just when you think you have that sorted, you will suddenly encounter the issue of “indexation”. For anyone who bought shares after the end of 2002, this is not an issue as former finance minister Charlie McCreevy abolished it at that point. Previously, its purpose had been to increase the base cost of shares and other assets to allow for the corrosive impact of inflation on their real value.

For people like you, who bought shares in 2002 and sold them in 2003 or later, the indexation multiplier is 1.049. What this means is that the “new” base cost of your three shareholdings is adjusted as follows: Fyffes’ base cost is now 55.597 cent instead of 53 cent; Total Produce now has a base cost of 46.156 cent instead of 44 cent; and Blackrock is 29.372 cent compared to 28 cent.

Fast forward then to 2013, when you sold your holdings in the new Fyffes and in Total Produce. Your 10,305 Fyffes shares were sold for €7,706.60, which is the equivalent of 74.8 cent a share. That amounts to a capital gain of 19.2 cent a share or €1,978.56 in total.

Next, we turn to the Total Produce holding where your 10,305 shares were sold for €7,905.87, or 76.7 cent a share. Given the indexed base cost, that amounts to a gain of 30.5 cent a share, or a total gain on that shareholding of €3,143.

Your remaining shareholding – in Blackrock – has now been renamed Balmoral and is traded on an unofficial basis (known as a grey market) by stockbroker Davy. In the most recent reported trades, last week, they were valued at 14 cent apiece, so you are somewhat out of pocket on that end of the deal at the moment.

For the purposes of 2013 capital gains tax, you made a gain on Fyffes and total Produce of €5,121.56. The annual capital gains tax exemption is €1,270, leaving you with a gain of €3,851.56.

To determine you final tax liability, you must first deduct costs incurred in buying and selling those shares (generally stockbrokers’ fees). Once those are deducted, the balance is taxed at 33 per cent.

Depending on the date in 2013 when the shares were sold, you should have paid Revenue the capital gains tax due either in December 2013 or January 2014, so I wouldn’t delay in sorting this out now. Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.