Standard Life - 73p Cash Payment But .......

bigmondy

Sorry - there may be one and I have missed it..... is there a good summary post on the thread for those with a couple of thousand shares paying just on the cusp of standard tax?

I have not got a clue.... _pale_

bowlhead99

If by 'the cusp of standard tax' you mean moving from 0% tax to basic tax rate, just go the dividend route. That is the standard treatment if you don't fill out the forms. 'Standard' taxpayers or basic rate taxpayers as HMRC calls them, don't have to pay income tax on dividends. You only pay income tax on dividends if you're a high rate (40%) taxpayer. So, if you are earning £10k or so total income in a year, it really doesn't matter as you are nowhere near high rate which means nowhere near the threshold to start paying dividend taxes. You would simply receive a 73p per share dividend free and clear to do whatever you like with.

If by 'the cusp of standard tax' you instead mean moving from 20% to 40% then you will probably be better off not increasing your annual income by not taking the 'C shares' dividend and simply taking the 'B shares' capital return instead. You have to fill out the form to select this.

Assuming you only have 2000 shares, you are only receiving ~£1500 cash. If you take the B route, you may need to pay taxes on the capital gain implied by that £1500 return of capital. Even if the current value of all your shares was 0.001% cost and 99.999% gain, that £1500 of gain is nowhere near your annual £11,000 allowance that HMRC gives you for capital gains every year. So there would be nothing to declare and no tax to pay. You receive 73p per share free and clear to do what you like with.

If you were higher rate taxpayer AND didn't have any CGT allowance left for this tax year then you would have to do the maths to see whether it makes more sense to pay income tax on all the money or capital gains taxes on some of the money.

Rabi

Please help me to understand

I get that SL has sold part of the business on the promise of returning 73p per share to shareholders and that SL will be a smaller company as a result, which in turn means that it will want to have fewer shares.

The 73p per share is a fixed rate as stated in the proposal to sell Canada.

The share consolidation is at a fixed rate of 9/11.

What is not fixed is the share price.

Using the example of 500 shares given in the literature, it all works fine if the share price is exactly 401.5p. For any other value of the share price at the time of consolidation there will be a profit or loss on the conversion. Most alarmingly, the higher the share price (normally a good thing for an investor) the greater the loss. Whereas the lower the share price the more we gain.


Given 500 shares, the proceeds will be £365 and there will be 409 replacement shares

Share Price 401.5p starting value is £2007.50, New value is £1642.14 Fractional £0.36 giving a final value of 1642.14 + 0.36 + 365 = £2007.50. Exactly what we started with.

Share Price 420.0p starting value is £2100.00, New value is £1717.80 Fractional £0.38 giving a final value of 1717.80 + 0.38 + 365 = £2083.18. £16.82 less than we started with.

Share Price 390.0p starting value is £1950.00, New value is £1595.10 Fractional £0.35 giving a final value of 1595.10 + 0.35 + 365 = £1960.45. £10.45 more than we started with.

We “sell” 91 shares at a fixed rate of £365 no matter what the share price is at the time of conversion.

Greater intellects than I have established this plan; can someone please explain (in simple terms) what it is that I have missed?

Thank You

bowlhead99

No value is created or destroyed by the splitting up of the shareholder base to give everyone 9/11ths of the number of shares they had before, so you don't need to worry about people suddenly having more total value than they started with.

After they pay out the big pile of 73 pences, the overall company will be worth a good chunk less than it was. That means that all the shares would be worth less than they were. That is a bit annoying because people generally think of the company being 'worth' 400p ish and if you suddenly have to recalibrate your brain to think of it as being worth 325p you will not be able to work out as easily in your head whether 350p is a good or bad price and whether 10p dividend a share or 15p earnings per share is any good etc etc.

So, if they then reduce the number of shares in issue by 2/11ths, then every individual share will be trading at roughly what it was and you can think of more than £4 being a high value and less than £4 being a lower value and not have to reset your own head to remember that £3.50 for a new share is a good price and £3.20 a share is a bad price.

You will have fewer shares at roughly the same price as they were and the difference will be cash in your hand (no overall value created or destroyed).

You are right, we don't know if the share price pre-consolidation will be 401p or 420p or 390p.

If you take your example. If the share price is 420p and there are 2 billion of them, then the company is worth £8.4billion. If it then pays out 2 billion times 73p, the company sees £1.46billion walk out the door, so the company is now worth 8.4-1.46 = 6.94 billion.

There were 2 billion shares in issue but we consolidate them into fewer shares by exchanging 11 old for 9 new: 2 billion becomes 1.636363636 billion shares. The act of changing the number of shares doesn't change the fundamental value of the company. So the company is still worth 6.94 billion.

If the company is worth 6.94 billion and there are 1.636363636 billion shares in issue, it stands to reason that each share will be worth £4.24.

In your analysis above you were thinking that at a 'high' starting share price like £4.20 you were going to be losing out. But that's because you thought it would still be exactly £4.20 afterwards. But it won't be. On my maths (albeit with a big simplification for number of shares in round billions), each of your new shares will be trading at 4.24. Times that by your 409 shares and you get £1734.16, and add on the £365 and you have £2099.16.

This is very close to the 'before' value of 500 shares at £4.20 = £2100. The difference is the fractional entitlements that I couldn't be bothered with and some inconsequential differences in rounding or estimating.

So, don't worry, you won't lose £16.82 if you start with a high price or win £10.45 if you start with a low price. The price will *not* be the exact same as it was pre consolidation. It will be whatever the market wants it to be. Logic dictates it goes up from £4.20 to £4.24 in my example. In reality SL shares move by 4p in a day quite easily anyway so you will not really notice it.

Long story short, the 9 for 11 'trick' is just a convenience to give you a vaguely recognisable price, they are not going to guarantee you that same price by creating money out of nothing or taking extra money away from you to force a fake price. After the consolidation there will be a natural adjustment of a suitable amount, sorted out by the market. Who knows, if there is some big news in their sector that day it could be an instant 5% swing when the market opens and you'll never see anything close to the previous night's value.

Rabi

Thanks Blowhead I understand and agree with everything you said in your post. Sorry to take up your time but you seem to enjoy yourself putting people straight. As you have probably guessed I am not a regular stocks and shares guy and only have these shares as a result of demutualisation.
In simple terms my understanding of the offer that SL is making if we vote “to approve the return of 73 pence per share, the implementation of the B/C share scheme, and the share consolidation.” is:-

SL will buy 18.18181818……% (2/11) of my.shares.

SL will pay me 73p per original share = 4.015p (73/18.181818181…..) per share that they buy, plus the fractional elements.

I will trust that the market re-adjusts the share price to reflect the true value of SL.

I just want to be clear what I am voting for.

Bottom line –

Sell 18.2% of my shares for 4.015p per share as cash in the bank and expect a suitable balancing of the share price following the consolidation such that I neither gain nor loose money on the overall deal. Simples!.

bowlhead99

Bottom line:

1)approve that the shareholders take 73p out of the business for every share they hold and restructure the remaining shares into a number of holdings that roughly keeps the price per share the same as what people are used to..

2) Decide whether you personally want that 73p receipt to be taxed as if it is a dividend or as if it were proceeds of selling a proportionate share of your holding. That proportion being 73p/(pre distribution total share price)

Everything else will work itself out in terms of what is a fair price for the new shares going forwards.

Point 1 is a done deal really because the vote last October said the idea of selling Canada with the expectation of returning most of the proceeds to investors, should happen. There is no way the scheme won't pass. So you won't get a choice whether to take the 73p or not. Everyone will get it.

So you are only looking at point 2 which is not a vote as such, it does not get passed by majority, it is just your personal choice how you'd like to take your 73pences out. If you don't choose it will be chosen for you and it will be characterized as a dividend.

When you have all your 73 pences in your bank you can do what you like with them which might include spending them on things in your day-to-day life, or buying some more SL shares, or buying some other shares in other companies or funds.

bowlhead99

Rabi wrote: »

Sell 18.2% of my shares for 4.015p per share as cash in the bank and expect a suitable balancing of the share price following the consolidation such that I neither gain nor loose money on the overall deal. Simples!.

To keep it simple, I wouldn't even look at it as selling shares, to be honest. The standard default choice will just result in you getting a dividend. Basically they are going to give you the 73p per share whether you like it or not, and the shares will become worth less than they are worth today, so they'll adjust the number of shares you have to keep them roughly the same price they used to be, you'll just have fewer. Whether you like it or not.

The only choice you make is whether you want to tell the tax man you got a 73p per share dividend or whether you "sold" shares and thereby potentially pay capital gains tax instead of income tax. If you are on the 40% tax bracket, you would likely prefer the capital gains route, B shares and fill that in on the form. If not, send the form back to ask for C shares that turn into a dividend, or don't even fill it in at all and get given the default choice of the C shares that turn into a dividend.

magicarp

so basically what everyone is saying is that standard life wants the shareholders to cash in some of there shares forcibly to make way for this huge wedge they have got.Or am i wrong:money:

Thrugelmir

magicarp wrote: »

so basically what everyone is saying is that standard life wants the shareholders to cash in some of there shares forcibly to make way for this huge wedge they have got.Or am i wrong:money:

Wrong..........

No one is cashing in anything.

Rabi

It is my intention to do absolutely nothing at all about voting or electing on this matter. The defaults are fine for me and the taxman.
As you implied the vote for or against the resolution is a foregone conclusion. Even if I voted against, my voice would be drowned out by the booming response of the large institutional shareholders who are waiting for the payout that they voted for in October.
Voting will incur an expense in both postage (ok, I could do it online) and administration. I would prefer that SL saves costs as far as possible. The same holds true for electing how I want the pile of 73 pences since I would go for the income option.
As you have pointed out I have no other options, other than pulling out of the whole issue by selling all my shares before consolidation. I am not minded to do that.
Blowhead, thank you for all your precise help. Probably more technical and detailed than I really needed. I have learnt a considerable amount from you and others on this forum. My usual approach when I get something from SL about shares is to let them do whatever the default is without spending too much time trying to understand the implications. With the number of shares I have it is not a big deal and I basically trust SL to not screw me. Having recently retired I now have time on my hands and thought I would try to understand what is happening this time. As it turns out my usual approach would have produced the same result but at least this time I understand that it is the right choice.
My bottom line remains the same; the effect on me is as if I had sold 18% of my shareholding for £4.01 per share. I don’t have any complex tax arrangements and would not be liable for any tax on such a transaction. I will end up with cash in the bank and the remaining value of my shares. That is what it means to me. I know this is not an accurate view and that your bottom line is technically more accurate. I think the bottom lines are in different books, mine is a Janet & John, whilst yours is a textbook.