Vodafone shares held in SIP

littleickle

Hi I am a Vodafone employee, paying tax at the 40% rate and have been buying Vodafone shares through a SIP program for slightly over 5 years. The program allows me to buy £125 worth of shares each month (before paying tax and NI) and I am given an extra £125 worth by the company i.e. buy one get one free.

I am looking for some advice on which option I should choose for receiving my return of value from the Verizon deal in order to minimise the amount I am taxed. Additionally I am likely to be buying a house in 2014 and as such am also looking to remove as much money from the SIP as I can during this deal in order to maximise my deposit. I have a small amount of shares that have fully vested i.e. that I purchased over 5 years ago, but the majority are still under that level. Ideally I would prefer not to hold on to the Verizon shares and have the added complication of paying US tax on dividends.

From what I have read the general advice for higher tax rate shareholders is to take the Capital option. However I am wondering what impact the fact I have purchased these shares through a SIP has on this decision? Ordinarily I understood the situation to be that any shares sold that had been held for less than 5 years would be subject to my rate of income tax. Is that still the case in for cash received/Verizon shares sold as part of this Verizon deal return of value?

From the site "Your Return of Value comprises a cash payment and a Verizon share element whether you elect for B Shares (Capital) or C Shares (Income). Your Vodafone shares and the Verizon shares will remain within the Share Incentive Plan.

However the cash payment cannot remain in the plan and you should choose how to receive this.

The default choice is to receive B Shares (Capital treatment) for Tax-free (Unrestricted) shares and C Shares (Income treatment) for Taxable (Restricted) shares."

Any advice, much appreciated, thanks for your time.

mardiemare2008

I too would be interested in knowing about this as I have a SIP and will soon have held it for 5 years..

littleickle

Sorry I should mention I'm talking about a Share Incentive Plan not a SIPP btw

Previn

Hi,

The capital gain is the best default option as you will pay tax on the cash payment at dividend rates rather than income tax rates.
You will only have to pay US tax on the Verizon shares on any dividends if you decide to keep them. I'm assuming at some point Computershare will ask us to complete W8-ben forms which will reduce this tax.

Re selling the shares, the Verizon shares are treated the same as the Voda shares, they will have the same 5 year rule regarding selling as the shares they effectively replace.
If you decide to sell before they have matured then you will have to pay income tax & NI as you would with Voda shares.
This can be avoided by reducing your income tax by paying avc's into a pension for example but it doesn't sound as though that is an option for you at present.

Hope that helps

littleickle

Thanks, much appreciated, should I be choosing Capital for both the shares that have vested and the ones that will remain within the scheme then?

It looks like I'll be forced to keep the Verizon shares which have not passed the 5 year vesting period, is the W8-ben form something I have to do via Computershare (they havent mentioned anything regarding this yet) or is it something I could potentially do myself?

Thrugelmir

Good article in Investors Chronicle today.

http://www.investorschronicle.co.uk/2014/01/21/shares/news-and-analysis/q-a-navigating-vodafone-s-verizon-disposal-eWNnbIBTUqxj3xC6a90kEI/article.html?utm_campaign=ICDailyEmail_2013&utm_source=emailCampaign&utm_medium=email&utm_content=

Previn

I made a typo, apologies. The default option is the best option, although it is income rather than capital on the 5year restricted shares.
Those are C shares, which is why I typed capital!

So to summarize, default is....
Bshares(capital) on unrestricted
Cshares(Income) on restricted

That will save you some tax & if you do nothing is the option that will be chosen anyway

The w8-ben form means you can half the rate of divi tax on US shares from 30% to 15%. A lot of brokers havent asked for this yet so may not be required until after the transaction takes place. Next Verizon divi is in May I think so no rush...

littleickle

Ok thanks for the help Previn. Am I right in saying that I will pay some income tax on the restricted shares if I take them as C shares (income), even though they are held within the SIP or does their SIP status mean no income tax is due on them?

Previn

littleickle wrote: »

Ok thanks for the help Previn. Am I right in saying that I will pay some income tax on the restricted shares if I take them as C shares (income), even though they are held within the SIP or does their SIP status mean no income tax is due on them?

Afraid so as they are intended to be held for 5 years to get tax fee status.
Income option means they are taxed at dividend rate which is lower than normal income tax rate.
To be clear, it is just the cash part of the deal that is subject to this unless you decide to actually sell the verizon shares. So approx 30p for each share will be received in cash which will then be taxed.

The intranet page on rewardtalk details most of this, not sure if you've checked that out?

littleickle

Thanks Previn, I got taken to a very minimal page on reward talk that didnt mention any of this, have you got a link you could PM me that I can use?

Does the above mean that if I select Capital for my unvested shares, I'll only be subject to capital gains tax on the cash part of these? If so I may wind up better off that way as I'll still be well under the £10000 CGT limit, so hopefully would pay nothing?

Is there any other implication/difference between the two types of shares e..g do you still get paid dividends if you take the Capital shares?

grocerjack

There was an ill fated slide deck that went round HQ and a presentation but VF Group Tax people saw it and uncovered that bits of it were wrong, although I'm not sure which bits. The deck writer then sent an email saying to disregard the entire pack!

The advice given by the writer of the deck was to sell matured shares now and opt for C shares on the remaining restricted ones. that way the restricted shares are treated as 'income' and therefore the RoV is a dividend, and hence as a higher rate taxpayer you'd be taxed at 25%. This tax isn't payable until you complete your self assessment form. In other words you'd defer payment of the 25%. From what I have read from RewardTalk this bit is essentially correct.

For example, if you have 1000 matured shares and sell today you'll get around £2200 tax free cash. You'll be left with nothing but restricted shares that mature each month as you been there more than 5 years.

However my reading is this. If you keep the matured shares then you'll receive approx 30p in cash per share, and 70p in a part Verizon share (currently around $46/£28.50 per share). You'll get the cash straight away, but the VZW share will be subject to US tax on dividends (30%) and then a dealing fee, and also potentially CGT on sale here unless you've held the VZW share for 5 years or more.. The BIGGEST downside if I have this correctly, is you end up with cash, VZW shares you may have to hold for 5 years, BUT under the consolidation around HALF your current VF shares. So, for your 1000 unrestricted (matured) shares, you'll end up with 500 VF shares, around 24 VZW shares, and £300 cash. In other words, AGAIN IF I'm reading it right, you're no better off than before, but arguably worse off because of dividend tax on the cash, and a holding of less than easy to deal with VZW shares for 5 years.

The restricted shares are easy, do nothing and get C shares which will be treated as income and therefore a dividend. You'll get cash, a number of VZW shares, and your VF shareholding will be halved (roughly) to maintain the current share price. You can sell some restricted shares that you bought and be eligible for Income Tax and NI, but you can't touch the matching shares. C shares are the only sensible choice here, and also the default option if you don't log into the system and choose.

In other words, if you had £x value in VF shares before, then after the RoV you will have THE SAME £x value but in a mix of cash, VZW shares and VF shares.

Anyone who knows different, or wants to correct me, after all this is MY interpretation as an employee, please feel free to add to the thread. :):)