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

bowlhead99

Spidernick wrote: »

All in all, I still maintain that the default position should be capital and I really cannot see why it was not set up as such. I'll advise when I hear back from Standard Life on this.

There are perhaps a few flaws in your reasoning.

You say "most people" do not use their CGT allowance. True, but "most people" do not hold shares in companies. Active investors do not always have all their CGT space available.

Even if they do have a full CGT allowance available, a CGT allowance is only worth 11k. If you received 12k of gains from all sources you would pay tax. By contrast if you are on a low income (say, your £113 a week state pension plus an employer or personal pension of the same again), you could receive £30,000 of dividends without paying any tax because it would all be covered by the tax credit.

If we are going to say "most people" - generalising and not knowing much about SLs investor base - look at median salaries or household incomes. The average salary you hear in the papers is something like 25k. So, £15k+ of headroom before running out of basic rate tax band and having to pay income tax on divs. And of course, looking at salaries overstates it, because many groups like pensioners do not have salaries.

The median single adult household has a household income of £20k ish. No div tax required for a long way. In fact on single adult households you could be in any of the bottom 9 deciles of income and still be under £40k total income and easily receive a couple of thousand pounds of SL divi income without paying tax. The median two adult household has income of about 30k between them. Similarly, no div tax required for a long way.

Also, this is looking at UK only. SL has a diverse international investor base. If you are in Ireland or France or Australia or a bunch of other countries you still have the 'notional tax credit' system, but you don't necessarily have a huge CGT allowance. An Irish individual has a CGT allowance of €1,270 which is not even a tenth of the UK allowance. Basic CGT rate is 33%. In Australia, a capital gain is taxed at your marginal income rate, although they let you off 50% of it if you held the shares over a year. Like the Irish, they'd want to have the dividend with an imputed tax credit instead.

And that stuff is just about individuals. What about the huge numbers of corporate investors around UK and the rest of the world? If you are a UK corporate, you have a preference for dividend because you pay zero corporation tax on all your UK dividend income, while you don't have any kind of 'annual CGT allowance'. You can look around the world and see the same story - US corporates are the same as UK corporates: given a choice they would have a preference for dividend income. They would be looking at 30% tax on their gains, while a huge slice of their dividend income can be excluded getting them down to maybe a 10% rate.

So, while an income distribution might not suit *your* personal circumstances you can't just generalise and say that they should make capital the standard choice. That doesn't work for a whole load of international investors, a whole load of individual investors without CGT allowances, or a whole load of corporates.

Clearly, higher and additional rate income taxpayers will usually prefer to receive capital because the combination of base cost in the relevant shares for CGT purposes, the CGT annual exempt amount, any capital losses and lower rates are likely to mean a lower tax burden. By contrast, UK corporate shareholders and basic rate income taxpayers in UK or many overseas locations would usually prefer an income distribution on the basis it is exempt (corporates) or any tax liability is partially or fully covered by the tax credit (individuals). There are some institutions like pension funds and charities and ISA/SIPP holders that don't care of course.

Looking at other companies' announcements on my PC:
Vodafone-

Shareholders who wish to elect for the income Option in respect of ALL their Ordinary Shares need take no action. Shareholders who do not give a TTE Instruction will automatically receive the Special Dividend in respect of all their Ordinary Shares.

Avesco -

Shareholders who had not made a valid election for the Capital Option and all Overseas Shareholders resident, or with a registered address, in a Restricted Jurisdiction have been deemed to have elected for the Income Option in respect of all of their B/C Share Entitlement.

SL has fixed the default treatment for certain overseas residents who would get an annoying double tax if they stuck with the income option. They seem to be following completely standard practice. And everyone is getting a choice so if something different works for your personal circumstances you fill in the form for that option when you vote.

You can of course maintain your view that they're wrong but if you don't appreciate all the tax rules or know their investor base very well, that might explain why you're at odds with them.

amateur_investor

After read the above, i take it the truth standard life shareholders are neither gaining or losing on the consolidation of shares? Standard life is now a smaller company. Does this mean the company will then be worth less, therefore the share price is likely to drop after the consolidation? Should we all sell before the consolidation and reinvest in something totally different?

What about the £1.7bn for the sale. What about the interest on that money. Who is gaining from the interest? I bet its a pretty profit. And yet after the consolidation I gain nothing. Sounds like a rip off to me.

Regards an amateur investor.

Coveredinbees!!!!

I have a grasp now on whats going on and as a result I will get about £850 back (which I don't really want). I get child tax credits will this be seen as income so reduce the amount I will be entitled to next year, even thought it's getting my own money back? Will it make any difference if it taken as capital or income?

jimjames

Coveredinbees!!!! wrote: »

I have a grasp now on whats going on and as a result I will get about £850 back (which I don't really want). I get child tax credits will this be seen as income so reduce the amount I will be entitled to next year, even thought it's getting my own money back? Will it make any difference if it taken as capital or income?

If there's any risk of that then take the capital option.

jimjames

amateur_investor wrote: »

After read the above, i take it the truth standard life shareholders are neither gaining or losing on the consolidation of shares? Standard life is now a smaller company. Does this mean the company will then be worth less, therefore the share price is likely to drop after the consolidation? Should we all sell before the consolidation and reinvest in something totally different?

What about the £1.7bn for the sale. What about the interest on that money. Who is gaining from the interest? I bet its a pretty profit. And yet after the consolidation I gain nothing. Sounds like a rip off to me.

Regards an amateur investor.

Do you understanding investment at all?

Have you read any of the previous posts that explain it? - it might help you to do so.

amateur_investor

Most of the shareholders are of the understanding that they will neither gain of lose as a result of the consolidation.
It seems reasonable that shareholders should get something from the sale and £1.7bn

Chris75

I am confused about the tax treatment of the Standard Life redistribution having been asked to choose between the B (Capital) and C (Income) option.


The form suggests that for a standard rate tax payer who has not used his full Capital Gains Allowance the choice is tax neutral but that seems odd.


The form says that for those choosing income they will receive a tax credit equal to the basic UK tax liability.

As no such liability, nor tax credit, would arise for those choosing the capital option does this not mean that as far as Standard Life is concerned it is effectively distributing more to those that choose the C option (to pay for the tax credit) than it does to those who choose the B Option?

amateur_investor

jimjames wrote: »

Do you understanding investment at all?

Have you read any of the previous posts that explain it? - it might help you to do so.

This comment doesn't help.
I don't understand a lot of what is mentioned in previous posts. I'd just like to know why standard life shareholders get nothing from the sale and £1.7bn.

jimjames

amateur_investor wrote: »

This comment doesn't help.
I don't understand a lot of what is mentioned in previous posts. I'd just like to know why standard life shareholders get nothing from the sale and £1.7bn.

If you really don't understand any of the previous posts, particularly the very detailed ones by Bowlhead99 then I really think investing in single company shares isn't for you.

Using terms like rip off doesn't really help anything and shows a lack of understanding. Bowlhead's posts have given lots of detail of how shareholders are affected by this and that you aren't losing out.

Chris75

amateur_investor wrote: »

This comment doesn't help.
I don't understand a lot of what is mentioned in previous posts. I'd just like to know why standard life shareholders get nothing from the sale and £1.7bn.

OK a very simplified explanation. I know a lot of people got Standard Life shares free just because they were policy holders and are not necessarily "investors". I am guessing that this is how you got your shares and that you don't normally buy & sell equities/shares.


Changing the Number of Shares
A share has a value printed on it but that doesn't really mean anything as it is not what the market will actually pay for it - which is why shares go up & down in value.


A company could have say 100 shares in issue that were valued by the market at £1 each - total value £100. If the company decided that it wanted 200 shares in issue it could do so by giving an extra share to every shareholder for every share that they held. The market would however still see the same company and say that as the company is worth £100 and there are 200 shares each share is worth 50p. 200 x 50p = £100. The company now has the 200 shares that it wanted and the shareholder is neither better nor worse off. Exactly the same argument applies if they reduce the number of shares. Less shares = more value per share.


Redistribution
If a company sells something (in this case a Canadian Company) it finds itself with a lot of cash and has to decide what to do with it. It can use the money to earn more profit for its shareholders or it can give the money back to the shareholders. In this case Standard Life has decided that it cannot use the money that it has received and wants to give it back.
If the company couldn't think of anything good to do with the money then you are better off having the choice of doing something else with it than letting Standard Life sit on the money but not generate any (or much) profit from it. You will be better of because you have the cash out and Standard Life generates the same (or nearly the same) profit but using less of your money - think of it as a higher rate of interest.


Does that help?