I am very confused about the payment made during the summer by First Active. I am guessing how I would calculate the capital gains tax (CGT) on it, if there is any.
First Active
In June, I had 1,832 shares (990 freebies and 842 purchased for £10,000), I would seem to have got 3,664 bonus shares and, being paid €2,051.84 for these, still have my 1,832 shares left.
In calculating CGT for this year, have I acquired 1,980 shares at zero cost and 1,684 shares at £11.88 in 1998, then sold all these shares for €2,051.84?
Next year, if they do sell to Royal Bank of Scotland (RBOS), in calculating CGT then what I would be using is my 990 shares at zero cost and my 842 shares at £11.88 in 1998 which all would be sold for €11,358.40.
Am I correct and could you explain how First Active reduced the capital of the company by issuing bonus shares as this does not make sense to me?
Ms H.McK, email
Now I'm confused. No, seriously, the summer's capital reduction exercise, while simple on the surface - i.e. you got €1.12 for every share you owned - is certainly complicated on a technical level.
Basically, the company had surfeit cash and, with no particular need for it, decided to return it to shareholders. They could have done this several ways:
a special dividend;
a share buyback;
capital reduction.
The last was chosen, as I understand it, for two reasons. People holding First Active shares wanted to hold on to them and a special dividend would attract income tax, which is levied at a higher rate than CGT, which applies on a capital reduction exercise.
Having opted for this approach, the company allocated two bonus shares for each share held. These shares were each valued at 56 cents. It doesn't matter whether the shares held were those initially allotted to qualifying First National Building Society members, additional shares bought by those members and others, or free loyalty shares distributed on the first and second anniversary of the flotation.
All this required the approval of the shareholders at a general meeting and, subsequently, the High Court.
Then the company internally cancelled the bonus shares and distributed the cash equivalent - €1.12 for every two cancelled shares, which equates to €1.12 per share originally held.
As I say, this was purely a technical exercise and you never actually got the two bonus shares into your hand.
From the tax point of view, the key issues are that the liability is to capital gains and that the acquisition cost of the bonus shares was zero.
The fact that, in your case, the bonus shares were attached both to shares you received for free and to others that you paid for is irrelevant. The base cost is nil.
Therefore, the entire €1.12 paid per original share is subject to CGT at 20 per cent.
Of course, you are entitled to gain €1,270 in any one tax year before entering the CGT net.
In your case, the bonus shares yielded €2,051.84. This is an absolute gain and, assuming you had no other asset sales this year, you have a CGT liability of €156.37 on the capital reduction transaction.
The RBOS deal is a separate transaction and, in this case, you will have to calculate separately the gain on your original free shares and any subsequent bonus shares, which will all carry a nil acquisition cost, and the balance which you acquired.
But you should check what you paid for them because it could not have been £11.88 a share unless you dealt with some alleyway huckster. The €6.20 per share offer from RBOS is higher than the shares have ever traded. I suggest you dig out the receipt relating to that transaction because you can't work out what CGT you will owe until you have an accurate purchase price.
Once you do dig it up, remember you can also deduct indexation until the end of last year and acquisitions cost, such as broker commission, before determining your capital gains liability.
As you say, on the basis that the RBOS deal succeeds, which looks a racing certainty, you will receive €11,358.40.
Bank charges
I wonder could you help me. The AIB (as you know) used to waive its bank charges on their Cashsave account when you left a balance at all times of €500 in your account. They have since scrapped this option. Is there any other bank in Ireland that still waives its bank charges?
Ms E.M., email
There are a number of banks that still appear to offer charge free banking for those who keep certain thresholds in their accounts.
As far as I am aware, these include National Irish Bank, Ulster Bank and Permanent TSB.
There may well be others and it would be well worth your while ringing around but do remember that there is more to a banking relationship than the charge structure on your account.
Most of those offering free banking will have conditions on those accounts (one, for instance, allows it only on accounts that have no access to overdraft facilities) and may or may not provide a service in other areas that is equal to or better than what is on offer from AIB.
Pensions
I have a personal pension plan which I started some time ago and to which I contribute the maximum allowed. Now I have moved to a public service job which has pension provision and my employers insist I pay a certain amount into this. The job is essentially on a contract basis and I may be employed only for one or two years.
What should I do? Can I have two pensions?
Mr D.L., Limerick
The simple answer is no but life is never that simple with pensions. Your employer could have offered you a Personal Retirement Savings Account (PRSA) but may have feared, under new employment rules, that that would be seen as treating you unfairly vis-à-vis other employees who receive employer contributions to their occupational scheme.
However, under such an occupational scheme, you have no vesting rights for two years so, if you leave earlier, you will be able to carry with you only your contributions and not those of the employer.
The key question is whether you can freeze your existing pension scheme rather than close it altogether. That can only be determined by the small print and you should contact your pension provider.
If it can be frozen, that would get you out of the jam and allow you to reactivate it if you move on. If you end up permanently employed in your current job, you can always decide to wind it up at that stage.
If forced to close it down, your best bet would be to open a PRSA to which you should be able to later transfer any pension contributions from your current employment.
You could always try to persuade your employer to offer you a PRSA option and contribute to it, which might be the ideal option.
In any case, you will not be allowed pay into a private pension and an occupational pension - aside from AVCs. Your first port of call should be to the private pension provider to check if that account can be frozen.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
