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

bowlhead99

molerat wrote: »

I know there is a difference. Either option was to give the individual small investor the opportunity to keep their money in a company they trust, who actually receives the cash is not relevant, it is all about trust and relationships and showing they care. I know that small investors are not liked by companies, they only want to attract the large institutional investors, so upsetting and losing a few will be a positive in the eyes of the board.

If they offered a DRIP they would not succesfully distribute the proceeds from the Canadian sale. Imagine of the £1.75bn, if £0.05bn is individual small investors like you. That's £50million. Then as they kick it out of the door it could all comes back because the individual investors want to reinvest.

The problem with this is that they would be stuck with £50m in a bank account that they don't know what to do with. One of the first rules of running a big public company for shareholders is don't take investor cash that you don't know what to do with. All of your investors (not just the little ones) now effectively have a share in a £50m cash balance doing nothing. There is no point investing in a company to get exposure to a share of cash in a bank account doing nothing. You would be better to invest in a rival company where all the money is in assets doing something.

So, everyone would think SL was an inefficient company and not attractive to invest in. This would hurt the share price for everyone including the small investors.

Your alternative method is to set up a retail stockbroker facility where every investor receiving cash can decide what he wants to invest and then the shares are bought off third parties. But that's a really expensive program to run and just making the facility available to people would be a lot of admin cost, to 'show you care'.

Running stockmarket trading facilities on a 'just in case' basis for shareholders who can go and buy shares off a mainstream broker for £5 a trade anyway, is a big wodge of cash that doesn't need to be spent. As your investors have already said they are happy with you selling Canada and returning funds to them, it is better not to try and set up a trading facility in case they change their mind, when a trading facility is something that most shareholders would have access to themselves anyway.

You are right that companies should have good relationships with their retail investors but they are running the company for all investors. The more they blow on special treatment for one group, the less efficient it can be overall.

Giving retail investors 2/11ths of their holdings back as a special distribution does not automatically imply they will "upset and lose a few". Just because you get a bit of cash from SL doesn't mean you then have to sell the rest in disgust. Many investors will be very happy to take cash out of their holdings which have grown over time. If I had invested £1000 and now it was worth £2000, I would be quite happy to receive a few hundred pounds back to invest in something else, without having to go to my broker and pay a selling fee to liquidate a few hundred pounds worth. It is not going to make me go into a huff and sell the rest of my holdings.

Of course, if you want some sort of exposure to the Canadian operations because you think it had much more potential than the cash that you just liberated from it, you can take your distribution payment and go and buy Manulife shares on the north american stock exchanges. Or any other company. You don't have to just think that the options are buy more SL or put it in a 0% savings account of your own.

molerat

It seems the markets like the overall picture, closing +2.72% on yesterday

bumblebee5

Hi, having read all of the thread, I want to ask a very basic question.
Am I right in thinking there are two options for SL shareholders to to vote on?
1, do nothing, and Income option will happen, i.e. 73p per share will be paid out
2, Vote for combination of Capital Option and Income Option - but I do not understand what this means - can anyone explain in real laymans terms please?
Thanks

HarryD

bumblebee5 wrote: »

Hi, having read all of the thread, I want to ask a very basic question.
Am I right in thinking there are two options for SL shareholders to to vote on?
1, do nothing, and Income option will happen, i.e. 73p per share will be paid out
2, Vote for combination of Capital Option and Income Option - but I do not understand what this means - can anyone explain in real laymans terms please?
Thanks

Option 2 means you can take it all as capital, or some as capital and some as a dividend. So you could go for half and half for example. Or whatever other split you choose. Personally I am, for example, going for 100% capital.

bowlhead99

In their literature they have some examples of the types of people who would benefit from using an income dividend option versus a capital proceeds option.

For example if you are not a high rate taxpayer and you don't have any of your annual capital gains allowance left, you would often prefer to receive a dividend as there is no further tax to pay, whereas a capital proceeds option might result in you paying capital gains tax depending on how much you originally paid for the shares.

However if you are a higher rate taxpayer you would perhaps prefer making a capital gain, as gains are taxed at lower rates than income, particularly if you had some unused annual capital gains allowance left.

If you don't make a choice they'll put you in the default choice for your country.

If you are not sure which option is best for you, work out how much tax you would pay on a dividend of 73p per share. Anything? If so, how much capital gains tax would you pay if you sold that fraction of your total holding at today's prices. Anything?

If the answer is nil in both cases, either don't bother to make an election, or consider if there could be any other reasons why you would be better with more income or more capital proceeds. Other pending dividends or disposals this year that could change the answer?

Spidernick

Hal17 wrote: »

May I ask a more basic question. Am I correct in thinking that if I choose Option B and complete the form - the payment received will be treated as Capital Gains and therefore my wife and I would not be liable to tax - no other Capital Gains taken.

But if we took Option C - this would be paid as Dividends and we could be liable for tax.

Appreciate any help.

Ops sorry - would have helped if I read the Q & A sheet closer - think that answers my question.

An even more basic question (and one I have just sent an e-mail to SL asking) is why income is the default option. I can think of very limited circumstances where taking the income option will result in a lower tax bill and so capital should have been the default option.

If I am missing something obvious then perhaps someone could enlighten me, as the way things stand many people will unwittingly walk into an unnecessary tax bill (i.e the majority of people who will not have used their CGT exemption but who will be paying income tax) if they do nothing and leave the income default in place.

molerat

Spidernick wrote: »

An even more basic question (and one I have just sent an e-mail to SL asking) is why income is the default option. I can think of very limited circumstances where taking the income option will result in a lower tax bill and so capital should have been the default option.

If I am missing something obvious then perhaps someone could enlighten me, as the way things stand many people will unwittingly walk into an unnecessary tax bill (i.e the majority of people who will not have used their CGT exemption but who will be paying income tax) if they do nothing and leave the income default in place.

bowlhead99 summed it up accurately above I believe. If you are a basic/non tax payer, which probably covers the majority, then there is no (additional) tax to pay in the same way as a normal share dividend payment.

killerkev

So based on the dividend payout for May 2014 of 10.58p 500 shares would have earned £52.90 if the new shareholding of 409 had been in place the pay out of the same amount of distributed profit would have been 12.94 per share. Each new share will earn the same share of the company's profit

molerat

killerkev wrote: »

So based on the dividend payout for May 2014 of 10.58p 500 shares would have earned £52.90 if the new shareholding of 409 had been in place the pay out of the same amount of distributed profit would have been 12.94 per share. Each new share will earn the same share of the company's profit

I believe that is an accurate view

bowlhead99

molerat wrote: »

bowlhead99 summed it up accurately above I believe. If you are a basic/non tax payer, which probably covers the majority, then there is no (additional) tax to pay in the same way as a normal share dividend payment.

That's right - it gets grossed up by the standard tax credit of 1/9th and then you pay your standard dividend rate on it.

So if you were getting £90 cash and it was classified as income:

For a basic rate taxpayer it counts as 100 income and you owe 10% of 100 which is 10, but already have 10 of credit so you pay 0, which is 0% of the 90 you just received

For a higher rate taxpayer it counts as 100 income and you owe 32.5% of 100 which is 32.5, but already have 10 of credit so you pay 22.5, which is 25% of the 90 you just received.

If you got £90 of cash classified as sale proceeds instead of income:
- you would pay tax on however much of that £90 counted as a 'gain'.

For some people, depending what they paid for the shares, the gain would be nothing, or maybe it is covered by their annual allowance. But for basic taxpayers who had a gain and it didn't fit in their annual allowance they would be paying 18% tax on it, which is more than the 0% they pay on dividends, even if what you pay the tax on is only the gain element of the £90 rather than all of the £90.

For a higher rate taxpayer they would be paying 28% on it, which again is over the 25% rate they'd pay on the £90 in an 'income' scenario, although you only pay tax on the gain element and not the total proceeds. If you'd held the shares for a very long time so that the £90 was 90% gain, 10% cost, you would have £81 of gain. Paying 28% tax on £81 gain is £22.68, while paying 25% tax on a £90 income is only £22.50. So there will be some high rate taxpayers as well who do not want the CGT route because they do better from taking income.

So, income becomes the default route for UK investors. If you are a higher rate taxpayer and not all of your proceeds are 'gains' or you have unused CGT allowances, you may prefer CGT. If you were an even higher rate taxpayer (i.e. 45% rate instead of 40% rate) you are even more likely to prefer CGT.

So, everyone gets the chance to pick whatever they want. In some circumstances you might want a mix. Depending on your buyin price for example, you could get paid B Share proceeds to crystallise a bit of capital loss with some of the money, and then get paid C Share dividends to pay a low rate of income tax on the rest. Everyone will have their own personal position which may not be the 'average'.