Capital Gearing Share Discussion Threads

[che7win] 17/9/2013 21:40

Gengulphus,
Thanks for such a comprehensive reply, much appreciated as always.

Day traders, I like the paper copy method. I have had 30 plus trades in the past and I know someone who could do their online return because of the number if trades they had. Maybe that has changed.

[gengulphus] 17/9/2013 17:19

che7win,

Finally my question - if I have to send tax returns by recorded delivery in the future, is this an 'allowable cost' that I can include in my capital gains calculations?

I'm pretty certain not. Allowable costs for capital gains/losses on a share have to be specifically associated with that share - it is for example well-established that account maintenance fees don't qualify as allowable costs for any share, because they are associated with all the trades done on that account in any shares, not just the trades in one specific share. Your tax return is associated with your capital gains/losses in all your shares and all your other assets, and additionally with your income and maybe other things as well (e.g. student loans), so I cannot see any cost primarily associated with your tax return rather than a specific share as being allowable.

Are there any other costs that can be included such as printing tax certificates, telephone calls to the helpline?

That's a very broad question!

If the cost is specifically associated with your holding in one particular share and not with any other holding or other aspects of your tax affairs, you've got a chance. In that case, do a careful study of the pages linked to from to see whether it fits any of the categories of allowable cost. Otherwise, forget it.

And unless the cost is reasonably large, I would suggest forgetting it anyway, as I suspect you'll have far more profitable things to do with your time! For instance, I've vaguely wondered whether postage on sending dividend mandates to company registrars would count as an allowable cost - each such cost is certainly associated with a specific share. But I've never bothered to investigate, because the potential CGT savings are too small to justify the time spent finding out whether it is, and if so, the time then spent recording each such item of postage and incorporating those records into my tax return...

Gengulphus

[daytraders] 17/9/2013 11:25

Sorry for butting in, but che7win, why don't you do it all online, its so easy now, and you know 100% they have your return on record then, i have sent stuff recorded signed for before, 50% of the time it gets delivered, but even when delivered i then check online and no proof of delivery details/signature any where, last 3 years i been doing it online now.

[che7win] 17/9/2013 10:47

Gengulphus,
I have a simple question!

I left my tax return into my local tax office yesterday. I always ask for a receipt to say it's been delivered and they always refuse.

The lady yesterday told me that I should send it recorded delivery for proof of delivery. It is a bit disconcerting that taxpayers have no proof of delivery and the taxman can issue penalties for late delivery!

She did tell me that all enquiry offices in the UK are being shutdown by next March and in future I will have to post it.

Finally my question - if I have to send tax returns by recorded delivery in the future, is this an 'allowable cost' that I can include in my capital gains calculations?

Are there any other costs that can be included such as printing tax certificates, telephone calls to the helpline?

Thanks.

[gengulphus] 17/9/2013 10:11

No. ISAs are exempt from CGT, and that works both ways, I'm afraid. Basically, everything that happens inside your ISA is completely 'invisible' to your CGT calculations, whether you want it to be or not.

Gengulphus

[here and there] 15/9/2013 17:48

A question i was hoping someone might be able to answer

I have taken a big hit on a stock in an ISA. If I sold it and capitalised that loss would I be able to put it against gains on stocks held outside my ISA..?

thank you

h&t

[ramillar] 05/9/2013 12:53

Very many thanks for your working out of this. The CGT case is highly relevant for those of us who have losses being carried forward. The higher the capital gain the better (don't want income in this sense!)

[gengulphus] 05/9/2013 12:31

Edit: Some parts of this post turn out to be a bit misleading about the actual Vodafone scheme, due to its detailed timing. For example, the estimated 1/2, 1/7th, 5/14ths split of the base cost would only have been a reasonable estimate for the capital option, not the income option. For details of the precise effects of the timing, see .

harvester,

HMRC can question business arrangements which are purely designed to avoid tax .
The deferred Vodafone share scheme looks a bit like an articial arrangement which could fall foul under that general tax provision ???

As MIATA says, B share schemes to give the investor the choice of income or capital treatment taxwise are standard stuff and well-established as accepted by the taxman - I must have experienced ten or more of them since I took up direct investment in shares seriously in 1999. Their shareholder circulars do have a standard warning about such a potential problem, but it only applies to corporate shareholders. For instance, Soco International is also doing one at present: its shareholder circular is downloadable from and says on page 36:

"A disposal of the Deferred Shares will be treated in the same way as outlined in paragraph 3 of Section 1 of this Part VIII and may result in a Shareholder realising a capital loss. However, whilst the Company does not expect it to apply, Shareholders liable to corporation tax should be aware of section 31 of the Taxation of Chargeable Gains Act 1992. This section can in certain circumstances apply to capital transactions which may result in the consideration, if any, actually received on a disposal of shares being increased by such amount as is just and reasonable having regard to any previous transaction which has reduced the value of those shares. Shareholders that are liable to corporation tax and own 10 per cent. or more of the C Shares should also note that it is possible that sections 176 and 177 of the Taxation of Chargeable Gains Act 1992 could be regarded as being applicable to such a Shareholder on a disposal of the Deferred Shares. Such shareholders are urged to consult an appropriate professional adviser."

So anyone holding their shares via a company might need to take a bit of care (which I won't be able to help with - I'm not knowledgable about the details of company taxation). But for those who own their shares personally, it's well-established that the basic income vs capital treatment choice in a B share scheme works.

I must admit though that the point you raise is one of the reasons I was very cautious about the treatment of the VC shares under the income option for Vodafone's scheme. A B share scheme handing out shares as well as cash is new ground for me and so I'm not familiar with what warnings there might be about uncertainty of tax treatment for such B share schemes.

RAMILLAR,

I think you are saying that if one takes the CGT option as in their statement, there is an immediate gain on the cash component and perhaps the Verizon shares if higher than at time of settlement. Or am I talking nonsense?!

Yes, under the capital option an immediate gain will be realised on the cash component - or to be precise, an immediate gain or loss, as someone who bought back in say early 2000 is likely to find the part of the base cost apportioned to the cash component is larger than the cash component...

As regards the VC shares, no, I'm reasonably certain (with the same caveat as in my previous post) that no capital gain will be realised at the time of settlement. They would be apportioned a part of the base cost during the process, and if and when the VC shares were subsequently disposed of, the gain or loss would be calculated as usual as disposal proceeds minus costs (which would normally just be that portion of the base cost and the incidental costs of disposal).

Of course, for anyone who uses the dealing facility mentioned in the announcement, that subsequent disposal and the resulting gain or loss may well happen at just about the same time as everything else. But using it is not obligatory, and might well be a bad idea if e.g. someone has used up their 2013/2014 CGT allowance but expects to be able to absorb the gain in their 2014/2015 allowance.

To me, the chief curiosity is that after supposedly gaining, one finds that you only have half (if a 1 for 2 split)of your Voda shares, ie a fairly large capital write-down.

No, you don't. On that assumption, the remaining Vodafone Ordinary share holding will indeed have about half the value that it did, and the way that is expected to happen is by you having half the number of shares at about the current price (whereas without the consolidation, it would still happen, but by having the current number of shares at about half the current price). But on that assumption, the apportionment of the original base cost will also assign half each to the holdings of Ordinary shares and B shares. So both the base cost and the current value of your Ordinary share holding will be halved, meaning that your unrealised gain on it will be halved.

In essence, under the capital option what the apportionments do is spread the unrealised gain (or loss) out among the cash and the holdings of VC shares and Vodafone Ordinary shares in proportion to their values. Very roughly, we expect about half of the value to go to each of the Ordinary shares and the B shares, and then (assuming Verizon don't make use of an option they have to increase the cash and reduce the VC shares) about 2/7ths of the B share part to go into cash and 5/7ths into the VC shares. So overall, 1/2 of the value and unrealised gain (or loss) into the remaining Vodafone shares, 1/7th into the cash and 5/14ths into the VC shares. You're forced to realise the 1/7th that goes into the cash, the other two parts you have the usual choice whether to realise by selling or keep them unrealised by continuing to hold.

All of that is very rough and depends on the values at the time. Or to be more precise, the values at the times, plural. That's because the directors decide the consolidation ratio they will put to shareholders in the shareholder circular according to the latest share values they have at that time, but the apportionments are determined by the share values at the time the scheme comes into effect, which will be some weeks later because the shareholder meetings need to happen inbetween, with sufficient notice given. If big share price changes were to happen between those two times, the way the apportionments split up the unrealised gains between cash, Vodafone shares and VC shares could end up significantly different from their relative values. So don't take what I say above as more than a rough indicator of what can be expected to happen...

This must rank as one of the most complicated deals ever - all because of course Verizon could never find $130 billion and pay in all cash!!

I've seen a few that rivalled it for CGT complexity in the past - Six Continents returning cash, consolidating its shares, and demerging into Intercontinental Hotels and Mitchells & Butlers all at once in 2003; United Utilities' two-stage rights issue over 2003-2005; Anglo American demerging two different classes of Mondi shares in 2007. I suspect even worse ones are possible!

Gengulphus

[ramillar] 05/9/2013 10:56

Gengulphus - thanks for that, from the Vodafone thread. I think you are saying that if one takes the CGT option as in their statement, there is an immediate gain on the cash component and perhaps the Verizon shares if higher than at time of settlement. Or am I talking nonsense?! To me, the chief curiosity is that after supposedly gaining, one finds that you only have half (if a 1 for 2 split)of your Voda shares, ie a fairly large capital write-down. But of course noone knows that the Voda share price will be at the time of consolidation. This must rank as one of the most complicated deals ever - all because of course Verizon could never find $130 billion and pay in all cash!!

[miata] 05/9/2013 09:06

Its standard stuff, tried, tested and used without HMRC objection by many companies in the past.

[harvester] 04/9/2013 21:49

Gengulphus: I believe there is a provision in tax law whereby
HMRC can question business arrangements which are purely designed to avoid tax .
The deferred Vodafone share scheme looks a bit like an articial arrangement which could fall foul under that general tax provision ???

[che7win] 04/9/2013 21:30

Top of page.

[letmepass] 04/9/2013 21:26

where can i find a free calculator for my CGT?

[chairman20] 04/9/2013 21:08

what a star and totally unwarranted apology not
remotely necessary.

I hadn't waited the announcement b4 trying to get
ahead of the game. Your knowledge and experience is
just fantastic. Thank You

[gengulphus] 04/9/2013 19:05

Edit: Some parts of this post turn out to be inapplicable to the Vodafone scheme due to its specific timing. They are the part about some of the base cost ending up in the Deferred shares if the income option is chosen, the part about that causing a capital loss to be realised when the Deferred shares are disposed of, and the part about use of a negligible value claim to cause the loss to be realised. See for details.

Chairman20,

:-)

In its announcement, the company mentions making the payment by a B share scheme. The usual sequence of such a scheme is:

1) Company does a share restructuring, splitting B shares off from the Ordinary shares. The terms and conditions of the B shares are carefully designed to make them worth a fixed amount of money and to make the following steps work:

2) The investor chooses whether to get the fixed amount of money as payment for the B share (capital option) or as a dividend on it (income option).

3a) If the investor chooses the capital option, the company buys the B share off the investor for the fixed amount of money, and that's the end of the matter.

3b) If the investor chooses the income option, the company pays the dividend on the B share and simultaneously converts the B share to a Deferred share. The terms and conditions of the Deferred shares are carefully designed to make them absolutely worthless in practice and to allow the company to compulsorily purchase them for effectively nothing and cancel them. When the company does that, it's the end of the matter.

Step 1 is the crucial one for CGT purposes. It's a share reorganisation into different classes of share, which requires the base cost of the original holding to be apportioned between the two new holdings in proportion to their values at the end of the first trading day after the split. So part of the base cost goes into the new holding of Ordinary shares and part goes into the holding of B shares.

The reduction in the base cost of the original holding means that any eventual gain on it will be more than if it had inherited the whole of the original base cost. But equally, its current value can be expected to drop by the fixed value of the B shares being split off, which will reduce the gain.

As far as the B shares are concerned, step 2 then chooses which of steps 3a and 3b applies.

If step 3a, the investor realises a gain or loss on the B shares of the amount paid for them by the company minus their portion of the original base cost.

If step 3b, the investor receives income equal to the dividend paid on the B shares, and as usual for dividends, also gets a notional tax credit equal to 1/9th of that dividend that counts in the tax calculation as taxable dividend income and can only be used to "pay" tax on that dividend. As far as CGT is concerned, the portion of the CGT base cost that went to the B shares stays with them when they are converted to Deferred shares. So when the company compulsorily purchases the Deferred shares for effectively nothing, the investor realises a loss of that portion of the base cost.

Alternatively, from the time the B shares have been converted to Deferred shares until the time the Deferred shares are compulsorily purchased, all the conditions are in place for the investor to make a negligible value claim about the Deferred shares. That can be useful if compulsory purchase of the Deferred shares happens in a later tax year than the one in which the B shares are converted to Deferred shares and you want to realise the loss in the earlier tax year - but note that the claim must actually be made before the compulsory purchase happens.

IMPORTANT CAVEAT: All of the above is about a standard B share scheme, in which only cash is paid out to the shareholders. This one is instead supposed to pay out both cash and shares in Verizon Communications (VC), which is something I have never encountered before. I'm reasonably certain that:

* The basic structure of the above will still happen - i.e. apportionment of the original base cost with one portion going forward with the Ordinary shares and the other portion entering into the CGT calculations about what happens to the B shares.

* The CGT treatment of the capital option will involve a second apportionment, of the B share portion between the cash and the VC shares, with a gain or loss immediately being realised on the cash, but on the VC shares only if and when they are sold or otherwise disposed of.

* The cash received under the income option will be treated as usual for a dividend.

What I'm not at all certain about is the tax treatment of the VC shares under the income option. I'm also only reasonably certain of the above points rather than absolutely certain: they depend on my reading of what the announcement says (it's possible I've read it more pedantically than really intended!) and also on nothing that was said about the scheme changing before its details are formally announced in the shareholder circular in December.

I don't have any reason to try to settle those uncertainties before that shareholder circular comes out in December, and waiting for it is by far the easiest way for me to get precise details of the scheme's taxation - such circulars always have a useful (if opaquely-worded!) section about taxation. The net result is that I'm not going to try to resolve my uncertainties about it until then.

In short, sorry, I can only currently give people a general idea about the tax treatment, not an all-i's-dotted-and-t's-crossed one. And that's not going to change until December.

Please feel free to copy this post to the VOD thread and/or link to it from there.

Gengulphus

[chairman20] 03/9/2013 20:55

Gengulphus

a million crazed and dazed SPECULATORS,
ACCUMULATORS, DIVI COLLECTORS over at
the VOD thread (Me basically in all three guises)
are asking what happens if VOD make a payment
to shareholders from the Verizon sale either
as a special divi or as a return of capital
(I think HMRC might insist on the latter).

Any hints on the CGT issues (presumably
a return of capital is just as adjustment in
buying input value or is it a partial disposal)?

Obeisances to the guru.

[zimbi] 21/8/2013 08:38

Gengulphus
Many thanks for your astute post :-)

[gengulphus] 20/8/2013 22:21

zimbi,

Yes, that's one of the cases of working for the government that I mentioned where someone outside the country can still subscribe to an ISA.

Specifically, from with my bold:

"3.1 To be eligible to subscribe to an ISA an investor must

* be an individual

* be aged 16 or over if subscribing to a cash ISA, or 18 or over if subscribing to a stocks and shares ISA

* be resident and ordinarily resident in the United Kingdom or, if not so resident, be performing duties as a Crown employee serving overseas and paid out of the public revenue of the United Kingdom (typically a serving member of the armed forces, or a diplomat), or be married to, or in a civil partnership with, such a person (the residence qualification – see paragraphs 3.6 – 3.13)

* not have subscribed to another ISA of the same type in that tax year (but see paragraph 11.12a where a cash ISA is transferred to a stocks and shares ISA) and

* not have exceeded the overall subscription limit (if 18 or over)."

As far as the US taxman is concerned, if diplomatic immunity extends to US tax, then the diplomat's ISAs won't be any more touchable by the US taxman than any other aspect of his or her finances. But I don't know enough about diplomatic immunity to know whether that is the case or not.

However, I'm sure the diplomat's employer would know! So if he or she wants a definitive answer, asking the employer will produce more reliable answers than asking on a board like this one...

Gengulphus

[zimbi] 20/8/2013 17:20

Gengulphus

Many thanks for your reply. Would the situation be affected for a diplomat who would not pay taxes in US?

[gengulphus] 20/8/2013 14:11

KWTrader,

I know its long shot but does anybody know if I could offset losses I have made through property deals within the EU. The country in question is Bulgaria, if so how would I go about doing this.

I don't see any reason why not, at least as far as UK tax is concerned. The usual rule is that you can offset any allowable capital loss against any chargeable capital gain. There are some exceptions (e.g. for 'clogged' losses realised on disposals to 'connected persons'), but I haven't come across one for disposals realised in particular countries.

As to how you go about doing it, I assume it's just a matter of filling in the Foreign and Capital Gains Summary pages of your tax return correctly and in accordance with their notes.

Having said all that, I'm no expert on UK taxation of foreign income and capital gains/losses. If faced with such a situation, I would definitely get specialist tax advice, at least for the first year or two while familiarising myself with wht I can and cannot do...

What the Bulgarian taxman thinks of it, I'm afraid I have absolutely no idea!

Gengulphus

[gengulphus] 20/8/2013 13:58

zimbi,

If I move to USA to take up a job, what happens to my ISAs? Do I have to close them somehow? Can I keep them but refrain from doing any trading in them?

As far as the UK is concerned, you can keep them and even trade in them. What you cannot do while you're not in the UK is subscribe more money to them (except in certain cases of working for the UK government IIRC).

As far as the USA is concerned, I'm pretty certain the USA taxman will not regard income and capital gains on the assets in the ISA as tax-free: ISAs exempt you from UK taxes, not other countries' taxes.

Gengulphus

[kwtrader] 20/8/2013 12:40

Hi,

I know its long shot but does anybody know if I could offset losses I have made through property deals within the EU. The country in question is Bulgaria, if so how would I go about doing this.

[zimbi] 20/8/2013 09:41

If I move to USA to take up a job, what happens to my ISAs? Do I have to close them somehow? Can I keep them but refrain from doing any trading in them?

[lomcovaks] 08/8/2013 11:44

Gengulphus,

Thank you very much for taking the time and trouble to answer so comprehensively.

I also realised just after writing yesterday that my friend, by dint of having worked abroad for so long, is also non-resident and not ordinarily resident so shouldn't be liable for cgt on her assets held here:



However, I do concur that she very probably does require specialist advice. She had approached one outfit with a view to doing this but the price quoted was enough to make you cough cornflakes all over the table.

[gengulphus] 07/8/2013 19:52

Lomcovaks,

I've had a quick look at the part of HMRC's CGT manual about private residence relief ( ) and found the final sentence of :

"It does not matter how the residence is used during a qualifying period of absence. For example, it may be let without any loss of relief."

So as long as your friend's period of absence abroad is a "qualifying period of absence", it looks as though it will get private residence relief.

However, she does have to make certain that it is a "qualifying period of absence". There are a number of conditions for this, described in and . I don't really understand them fully, so if you find you have further questions about them, I'm afraid I probably won't be able to help. I.e. all I can really do in this area is give some pointers in (roughly) the right direction, not fully answer questions!

One other pointer I would give is that with the conversion to a single dwelling and back again, the possible interactions with foreign tax and the likely-to-be-large amounts of money involved, your friend's position is one I would regard as complex! In such a position, I would definitely pay for specialist tax advice - not doing so is likely to be a false economy, potentially costing far more in unnecessarily-paid tax than the advice would have cost... Bulletin board advice is not a substitute for specialist tax advice: a useful supplement to it, yes, to get some of the basics worked out and work out what questions to ask, but not a substitute unless you are lucky enough to encounter a real expert who feels like giving away some free advice and you can tell the diference between that real expert and everyone else who answers!

And just in case you're wondering, I am most definitely not a real expert - I'm an interested layman with some experience finding my way around tax rules, but it is entirely possible that there are relevant rules that a proper expert would know about and I don't even suspect exist!

Gengulphus