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

HarryD

danegee wrote: »

My aunt has 1,517 shares.

I basically understand the gist of B/C share options. However, I have no experience in shares.
My aunt was given the shares and has asked me for advice.
After reading through this is the conclusion I make.


Would I be correct in assuming that if she takes c share option she will receive a cash payment of £11,007.41p which is taxable at 10%?
Meaning she would receive a cash payment of around £9,906.

If she takes b share option the dividend will be paid in shares and treated as capital receipt.

here are some questions I have on some points I am not too sure about.

She is a basic taxpayer, retired. Would it be wise for her to take the cash dividend.

What happens to her existing 1517 shares valued at 401.5 if she does takes the cash option?
would she then have fewer shares ( around 1,227) valued at 401.5 and of course not receive the B/C share scheme proceed ?

No.

She will receive 1517 x 73p which is £1107. Not taxable assuming she is not a higher rate taxpayer.

If she elects for B shares she will still receive cash - the same amount. Not taxable unless she has other capital gains.

After the pay out she will have 1241 shares valued at somewhere around the current share price (Google Standard Life Share price).

danegee

HarryD wrote: »

No.

She will receive 1517 x 73p which is £1107. Not taxable assuming she is not a higher rate taxpayer.

If she elects for B shares she will still receive cash - the same amount. Not taxable unless she has other capital gains.

After the pay out she will have 1241 shares valued at somewhere around the current share price (Google Standard Life Share price).

Thank you very much. I appreciate your time.

Lambie123

Hi, I am not clued up on this kind of thing but I would like to ask a question on behalf of my dad. My dad is a retired OAP and is wondering what the best option would be for the B/C shares. He currently has only around 850 shares and he pays tax on his dividends for SL along with those of other company shares he holds. Am I right in guessing that because of this he would be taxed if he took option C meaning his best option would be option B? Any help would be appreciated. Thanks

HarryD

Lambie123 wrote: »

Hi, I am not clued up on this kind of thing but I would like to ask a question on behalf of my dad. My dad is a retired OAP and is wondering what the best option would be for the B/C shares. He currently has only around 850 shares and he pays tax on his dividends for SL along with those of other company shares he holds. Am I right in guessing that because of this he would be taxed if he took option C meaning his best option would be option B? Any help would be appreciated. Thanks

What do you mean by he pays tax on his dividends?

If he is a basic rate taxpayer he will pay no tax on share dividends. And he will pay no tax if he does nothing and receives the cash via C shares.

If he is a 40% taxpayer, and has capital gains under £11,000, he will be better off electing for the cash via the B shares.

jimjames

Based on the number of questions about this payment that seem to reflect a lack of understanding of how shares work I'd really recommend anyone who is holding these shares and has no other investments to fully understand the risks associated with holding a single company shares.

If you were to sell and invest in a fund then the risk would be substantially reduced and not cause these kind of problems for you.

Lambie123

HarryD wrote: »

What do you mean by he pays tax on his dividends?

If he is a basic rate taxpayer he will pay no tax on share dividends. And he will pay no tax if he does nothing and receives C shares.

If he is a 40% taxpayer, and has capital gains under £11,000, he will be better off electing for the B shares.

Hi, I think he means the 10% tax credit. He said something about seeing this tax on a dividend voucher and he definitely paid tax on them years ago. I can't contact him just now to ask but he's usually really clued up on shares as he's held many for many years and bought/sold some recently.

It may just be me that is picking up what he said wrong.

Thanks

bowlhead99

Being an OAP doesn't tell us anything about his tax status - any OAP can be in the 0% tax bracket earning £9k or 45% tax bracket earning £159k.

If he's usually far enough below the higher rate (40%) tax threshold that he is only required to pay 10% tax on dividends, and so can use the free 10% tax credit to settle his entire tax bill on dividends received, without paying any extra cash to the tax man, then that route that he usually uses for the rest of his share portfolio would work just the same for the 73p per share dividend from the C shares. Getting a 73p per share dividend is the standard choice that you're given if you don't make an election to take B shares instead.

If however he is in the higher rate (40%+) tax bracket where the free 10% tax credits only partially pay his tax liability and he usually has to pay further dividend tax on top, then dividend might not be the best choice, because he'd have to pay a chunk of tax if he went the standard 'C' route.

If that was the case, you are right that option B will usually be better, because he can use his capital gains tax allowance and some of the 73p will be a return of cost of what he paid for the shares in the first place, rather than all of it being a taxable gain.

If he already has a bunch of other shares which produce a decent amount of dividends on top of his pensions, then for all we know he might be physically paying income tax for every dividend cheque that he gets. He might also have used up all his capital gains tax allowance through disposals this tax year. Whether he is, isn't, has, hasn't will change the 'best' choice for his circumstances.

If he's experienced in holding and buying shares and dealing with dividends and gains, then it should be straightforward for him to work out how much of the 73p he would pay in tax if he received a 73p net dividend, or how much he would pay in CGT if he sold a portion of his total shares.

If the amount is nil in both cases it doesn't matter what he chooses. If the amount is not nil in both cases then one choice will be better than the other. If he has a portfolio of shares he should know what taxes he pays on the income he receives or the gains he makes when selling them. No disrespect intended but if you're not quite sure what he said or what he meant, and not as experienced in share investing as he is, then it might be better for him to try to work out the numbers rather than you have a game of chinese whispers with us.

See if you can get him to have a go at the numbers himself and let us know what he doesn't understand.

HarryS

Hello

I have read through this whole thread and it has helped me understand the reasons behind the actions of SL, thank you.
We are not investors having been 'gifted' the shares from SL so have no experience in dealing or understanding the language

I remain a little confused as to which option to choose for us.

My husband has 996 and I have 450 (don't know why that happened). He pays tax at the standard rate, I pay none (I am his carer)

I thought we should go for the cash option? But (please forgive my embarrassing ignorance) isn't a dividend the same thing? ie: cash in your bank?

I would be very grateful for a simple answer please. Many thanks

myhouse_2

Thanks everyone for some very useful answers in this thread. I am planning on selling my standard life shares. Is there any advantage to waiting till after the discussed changes have gone through or can I just sell now?
Since the value will not change (except for regular share price fluctuation) I assume it's the same but I'm curious about any tax implications (I hold only about £1000 worth and I wouldn't have any other CGT liabilities this year.

bowlhead99

HarryS wrote: »

He pays tax at the standard rate, I pay none (I am his carer)

I thought we should go for the cash option? But (please forgive my embarrassing ignorance) isn't a dividend the same thing? ie: cash in your bank?

Whether you pick the 'dividend' option "C shares" or the 'capital return' option "B shares" you will get the same thing, cash in your bank at 73p per share held.

The difference is how they are taxed.

For people in your tax bands who have not sold any other shares this year, there is not actually any difference in the tax paid on the £300-700ish that you receive ; you will have zero tax to pay in either situation. You can have the standard, default choice of the C shares which is what you'll get if you don't make any election.

Unless your husband is within £1000 or so of the 40% income tax bracket in which case you should probably look at your tax situation more carefully and probably choose the B shares for him if he has not sold any other shares this year.

myhouse wrote: »

Thanks everyone for some very useful answers in this thread. I am planning on selling my standard life shares. Is there any advantage to waiting till after the discussed changes have gone through or can I just sell now?
Since the value will not change (except for regular share price fluctuation) I assume it's the same but I'm curious about any tax implications (I hold only about £1000 worth and I wouldn't have any other CGT liabilities this year.

No advantage whatsoever to continuing to hold instead of selling now, other than normal variations that you mention. Of course, there may be some naive investors who think they should wait to get the cash before dumping the rest of the shares, which might have a minor negative effect after payout. Just another type of fluctuation.

I'm generally of the attitude that if one doesn't want to be invested then one shouldn't wait for some arbitrary event which doesn't change value, before stopping being invested. The only reason to defer selling is if a sale now causes a CGT problem that you'd prefer to spread over multiple tax years, so much so that you're willing to take on the risk of holding the shares a few more months.

With your small holding and more CGT allowance than you have gain, you wouldn't have any tax to pay if you sold the whole lot tomorrow. So, as that is not a factor at all, you might as well get out tomorrow morning.