Dividend share problem Help Needed

londoninvestor

Money_Grabber13579 wrote: »

If this is the way the split is taking place, it’s a very stupid way of doing it, given that with a little more care, the companies could be split using available demerger provision.

Agreed - it's very rare for these corporate actions to be structured as a dividend. Or at least, very rare for there not to be an option for investors to receive something that behaves like a distribution of capital - for precisely these tax reasons.

If it is treated as a dividend, another question is - where is listed company A tax-resident?

If it's not resident in the UK, then such a "scrip dividend" is treated not like a dividend, but like a stock split or "bonus issue". i.e. there is no income tax liability, and for CGT purposes the investor's original base cost needs to be apportioned between the new holdings of shares in companies A and B.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51823

gh67

Money_Grabber13579 wrote: »

Ok, so this is a bit of guess as to what is happening here.

Company A has (or will incorporate) a subsidiary entity, Company B. At present, the OP only has shares in Company A, with Company A owning all of the shares in Company B.

However, there is a desire to split the companies and so Company A will declare a dividend in specie, with that dividend being settled by the transfer of shares in Company B, from Company A to the OP (along with any other investors).

The OP will therefore have received a dividend equal to the value of the shares in Company B, whilst Company A’s value will have significantly reduced.

I can therefore see the OP’s dilemma because the receipt of the dividend is likely to be taxable, albeit, a capital loss might then arise if Company A’s shares were ever to be sold. If this is the way the split is taking place, it’s a very stupid way of doing it, given that with a little more care, the companies could be split using available demerger provisions which may mean that there is no tax liability for the shareholders.

Accordingly, the OP might want to investigate further as to what the proposal actually is and if there has been a misunderstanding in what is happening.

I think you've explained it a lot better than me I made a mistake with the tax its 32.5% and the company is American and our american colleagues wont have to pay this tax and as most share holders will be in America I assume thats why its been dine like this.

gh67

Dazed_and_confused wrote: »

There is no income tax rate of 32%.

There is a rate of 32.5% applicable to the dividends received from shares.

It still isn't clear from your post if you will be liable to pay this. You don't pay tax on "shares", it is tax on the dividend the shares pay.

I have spoken to HMRC and they confirm I will be liable for Tax on these shares

londoninvestor

gh67 wrote: »

I think you've explained it a lot better than me I made a mistake with the tax its 32.5% and the company is American and our american colleagues wont have to pay this tax and as most share holders will be in America I assume thats why its been dine like this.

If the listed company is American, wouldn't the "dividend" be exempt from UK income tax as a scrip dividend? (See the HMRC link I posted a couple of posts back)

gh67

I'm not trying to work out if I'm liable or not as we have a letter from our HR stating we will be liable at 7% or 32.5% depending on our income, I've also spoken to HMRC who have confirmed this.

I'm just trying to cut the amount of tax i pay, the first post was just an example but to give you an idea I hold over £70K in shares of which roughly 50% are tax free just now. I was looking to see if I could transfer those share to my wives name, I know she will still be liable for tax but at 7% as she earns less.
What I don't know is when my wife goes to sell the tax free shares I gift her will she then be taxed.

Sorry for the confusion guys.