Migrating from the CREST system

[Deleted User]

As a result of the withdrawal of the UK from the EU, a number of Irish companies listed in London and Dublin are making arrangements to migrate from the CREST System of holding/trading shares by the end of March. In its place will be a hybrid arrangement with UK shareholders using CREST and the rest using a different clearing system; Euroclear Bank in Brussels, in the case of Flutter.
Assuming shareholder approval for the migration, has anyone a sense of whether paper certificated shares would be more of a hassle to trade in the UK? 

coastline

I've got ISA's and SIPP and both are paperless. It's over 20 years since I converted and never gave it a thought. Couldn't be bothered with the hassle of stuff in the post wondering where it was all of the time. Some people are happy with certificates I suppose. At the end of the day its just like a figure in a book to me just like the old bank books in the building society.
A few tales from years when I bought a few government privatisation shares. I decided to sell some British Gas shares as just about every government issue was an instant profit. I found the local stockbroker in a basement in the high street. A guy in braces greeted me and simply took the certificate from me and said your cheque will be in the post shortly after settlement day. No idea how much etc etc. !! As I left there were two young lads sitting together having a natter whilst plotting share prices on large sheets of graph paper. People get concerned today about their management going bust but I wonder what they would have thought about that ?
Same again with Abbey National shares I just handed them over the counter at my bank where my salary was paid into. At the same time a young girl with a butchers apron on was handing over her bosses certificates to an assistant. They were probably going into a safety deposit box at a guess.
Just to add to this I'd rather have all investments in tax efficient vehicles. Something else to watch out for.
   Do you owe tax on excess reportable income? | Monevator
Tax efficient investing in the UK (or what order to put things into an ISA or SIPP) (monevator.com)

bowlhead99

ZingPowZing said:

Assuming shareholder approval for the migration, has anyone a sense of whether paper certificated shares would be more of a hassle to trade in the UK? 

Basically, yes it would be. Paper shares are already more hassle/slower or more expensive to trade electronically, but if you held paper shares which could currently be sold via any broker on LSE or Dublin, and then didn't get them into electronic form in time for them to transfer as part of the migration, and you later wanted to sell them, it would not be as (relatively) simple as it is now.

The broker would first have to convert them to CDIs (if looking to deal and settle through Crest) or deposit them in Euroclear direct, to get a suitable electronic version of the shares to allow them to be traded and settled. The shares themselves wouldn't directly trade in London, only a CDI would trade in London. So brokers could trade the CDI, but to get it would first have to deposit your stock into the system to get the CDI. You could imagine it would take longer to do this than if the actual instrument you hold in your hand has its own direct listing, allowing the broker to just take your paper and book a trade to sell it. 

The shareholder notice or FAQs on Flutter's site contain some efforts to convince you that ending up with paper after the migration could introduce extra cost/hassle or delay, and while cynics would assume that the shareholder notices are always written in a way to encourage people to vote yes to whatever the proposals are or do whatever the board recommend, it does seem a legitimate concern.

My holding is via my SIPP so its the pension trustees / nominees who legally own my shares and they won't hold it in paper form, so no hassle for me . Technically, you're right to caveat your comment with 'assuming shareholder approval', but all the big institutional investors are going to nod it through because the price would be damaged by anything that made trading more difficult for the 90%+ of holdings that are currently electronic so we can probably assume that bit of the process (the EGM vote for approval of the proposal) to be a slam dunk.

[Deleted User]

Thanks, you two.
My memories chime with yours, coastline. I remember taking a bunch of certificates to a branch of Lloyds bank and finding out next day (or the day after) what they realised. C 1990 before trades were time stamped? If so, I suspect that brokers simply assigned to myself and other novices the worst price they traded all day. 

I quite like having some paper certificates, bowlhead, and don't relish the prospect of converting them; I could deliver them to my stockbroker in person, as I suppose I shall sell them one day. Just to check though, I wouldn't be passing up the opportunity to transfer them to another person by going paperless? I imagine that sort of transaction might raise an eyebrow at the tax office.

bowlhead99

ZingPowZing said:

I quite like having some paper certificates, bowlhead, and don't relish the prospect of converting them; I could deliver them to my stockbroker in person, as I suppose I shall sell them one day. Just to check though, I wouldn't be passing up the opportunity to transfer them to another person by going paperless? I imagine that sort of transaction might raise an eyebrow at the tax office.

Some people do like / enjoy / feel safer having printed certificates if there's no chance they might need to be sold at short notice.

For example it avoids any holding fees, and also helps avoid any fallout from some relatively unlikely events where e.g. a broker who was maintaining an online account for you goes bust and the assets need to be transitioned to another broker who's still in business before you can regain control of your assets (see recent SVS Securities thread).

On the flip side it can introduce delay to a sales process, make the sales process more expensive than it needs to be, and you bear your own risks of safe storage of the certificates (eg if they've been lost, stolen, burned down etc you are likely to need to pay an admin fee and indemnity insurance to convince a broker or registrar to facilitate a sale).

At some point the whole London stock exchange may end up like other jurisdictions where shares are dematerialised into a central register and only change hands electronically. It works ok for most.

But to your question, you won't be giving up the opportunity to transfer to another person if you go paperless, whether Flutter CDIs or other companies' shares held via a nominee. By completing whatever electronic or paper forms the broker requires, a transfer can be arranged. The easiest scenario is where you're transferring to someone who also has an account with the same broker.

Not sure what you mean about a transfer 'raising an eyebrow with the tax office'. It's fine to sell or give your property to someone else for whatever consideration (if any) you agree. For some types of transfers (eg to spouses) the relevant value for CGT might not be the same as the consideration that changes hands. However, that has nothing to do with whether the asset in question is a share held via paper cert or one beneficially owned (e.g. through nominee or via CDI).

[Deleted User]

It's going to take me a while to get my head around that concept, bowlhead. 
If I was a tax-collector, my concern would be that legitimate CGT and IHT revenues would be circumvented by "gifting" investments to beneficiaries. 

Thrugelmir

ZingPowZing said:

My memories chime with yours, coastline. I remember taking a bunch of certificates to a branch of Lloyds bank and finding out next day (or the day after) what they realised. C 1990 before trades were time stamped? If so, I suspect that brokers simply assigned to myself and other novices the worst price they traded all day. 

All trading conducted on the floor by jobbers and 10 day settlement terms. Those were the days. 

[Deleted User]

Yes, I can see how a paper certificate might give the industry the same chance to rip-off its customers today.

bowlhead99

ZingPowZing said:

It's going to take me a while to get my head around that concept, bowlhead. 
If I was a tax-collector, my concern would be that legitimate CGT and IHT revenues would be circumvented by "gifting" investments to beneficiaries. 

For CGT purposes the basic rule is that if you give the shares away or sell them at below market value, you would need to substitute the actual disposal proceeds (if any) that you get, with the arm's length / market value of the assets at the time of transfer, to work out what CGT you owe, upon getting rid of them. Market value at time of your disposal less cost of buying them in first place, may produce a gain even if you don't want to receive any cash proceeds.  You don't avoid the gains tax liability just because you don't ask for any money when you give them to your friends or family.

That's unless the disposal was a transfer to a spouse /civil partner - where both the actual consideration paid by the receiver, and the market value at the time, are completely ignored. Transfers between spouses are always 'no gain, no loss' and the receiving spouse will just take over the first spouse's base cost for CGT purposes.

However, you seemed to imply it would make some sort of difference whether the person gifting / transferring the assets had previously held them as a paper share certificate (in which case they would need to provide the company's registrar with a transfer form so that the company could record the new owner in its records), or held them dematerialised in the broker nominee's records (in which case they would need to provide the broker with whatever form of transfer agreement required so that the broker could record the new owner). In both cases, the person maintaining the record would need to get transfer documentation so they could legally effect the transfer.

The idea that your method of shareholding (paper, Vs nominee / depositary receipt) would make a difference to whether HMRC would be interested,  was the impression I took from your comment, "I wouldn't be passing up the opportunity to transfer them to another person by going paperless? I imagine that sort of transaction might raise an eyebrow at the tax office." But perhaps I misunderstood.

[Deleted User]

I was just putting it out as an unlikely possibility. I reckoned the taxman would have something to say about that but didn't know, so thanks for clarifying, bowlhead.
All in all, time to transfer these paper certificates.

robinsonpr

Having a nightmare trying to transfer my paper shares in Flutter to electronic format.  I'm based in the UK.  Have tried Hargreaves Lansdown, IG, Interactive Investor among others, plus various banks with sharedealing services.  All say they can't take the paper shares as they can only settle with Crest, and Flutter needs to settle on Euroclear.    Got quite a few of these shares and can't do anything with them.  Has anyone in the UK managed to dematerialise Flutter paper shares?