Thomson Reuters return of capital

niklas19

I'm holding a small amount of TRI stock which last year distributed a "return of capital".  For each share there's a distribution of around $4 per share and a reverse stock buyback.  As a result each share was replaced by $4 cash distribution and a fraction of a new shares.  After the distribution the portfolio value didn't change.

I'm wondering how to declare that on self assessment?  It makes me think that this is a cost-basis reduction and should be treated in terms of CGT but not sure whether this is income (like dividends) or capital.

The whole operation has been described in details by reuters (google: Thomson Reuters return of capital) - don't want to paste links for obvious reasons.

wmb194

niklas19 said:

I'm holding a small amount of TRI stock which last year distributed a "return of capital".  For each share there's a distribution of around $4 per share and a reverse stock buyback.  As a result each share was replaced by $4 cash distribution and a fraction of a new shares.  After the distribution the portfolio value didn't change.

I'm wondering how to declare that on self assessment?  It makes me think that this is a cost-basis reduction and should be treated in terms of CGT but not sure whether this is income (like dividends) or capital.

The whole operation has been described in details by reuters (google: Thomson Reuters return of capital) - don't want to paste links for obvious reasons.

Is there a prospectus or suchlike relating to this? Usually there’s a tax section in them that’ll give you an idea of how it should be treated.

eskbanker

niklas19 said:

The whole operation has been described in details by reuters (google: Thomson Reuters return of capital) - don't want to paste links for obvious reasons.

No, your reasons for not wanting to paste links aren't obvious at all!

There is a separate matter of potentially not being able to, as a new poster, although that's easily worked around with some editing of the URL to prevent it being recognised as a link by the forum software, e.g. replacing 'https' with 'hxxps'.

niklas19

@wmb194 yes, there is.  There's management circular that describes tax implications from Canadian tax standpoint (since TRI is domiciled in Canada).

hxxps://ir.thomsonreuters.com/static-files/b081cdf4-2b14-4531-b945-e40f7357393e

Page 129: “Non-Canadian Resident Shareholders”.

It states that there should be no liability from Canadian tax standpoint but I just want to confirm if that reasoning would apply to UK tax as well.

poseidon1

wmb194 said:

niklas19 said:

I'm holding a small amount of TRI stock which last year distributed a "return of capital".  For each share there's a distribution of around $4 per share and a reverse stock buyback.  As a result each share was replaced by $4 cash distribution and a fraction of a new shares.  After the distribution the portfolio value didn't change.

I'm wondering how to declare that on self assessment?  It makes me think that this is a cost-basis reduction and should be treated in terms of CGT but not sure whether this is income (like dividends) or capital.

The whole operation has been described in details by reuters (google: Thomson Reuters return of capital) - don't want to paste links for obvious reasons.

Is there a prospectus or suchlike relating to this? Usually there’s a tax section in them that’ll give you an idea of how it should be treated.

It is a long standing problem for investors holding shares quoted on foreign markets. The prospectus issued on capital reorganisations such as the current example, will tend to only address the domestic tax implications for investors where the security is listed. 

In the present example it is a Canadian holding so, Canadian tax rules would be covered. There is no automatic read across of the Canadian tax rules to the UK, so any statement related to Canadian taxes, does not necessarily apply to the UK treatment of the transaction.

For the UK perspective, one must go back to first principles as set out in primary tax legislation as varied by case law - see HMRC internal manual below on foreign company dividends and distributions.

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim5210

Understandably, navigating these complicated rules is the natural preserve of tax accountants rather than amateur investors.

In the OP's case, given he states the amounts applying to him are relatively small, therefore rather than paying for specialist advice he could take a pragmatic view and treat the cash received as an untaxed foreign dividend with no associated foreign tax credit.

OP, would you pay dividend tax at 8.75% or 33.75% on this basis?

niklas19

OP, would you pay dividend tax at 8.75% or 33.75% on this basis?

I could take that approach without delving into details of this particular distribution just to be on the safe side - as I said, my holding is rather modest and the aforementioned distribution, in my case, is literally ~$50.

There's no foreign tax deducted at source. I'd still prefer to understand though if this is income or capital gains just for future reference and even though the tax implication would be probably <£10 if I take the dividend route, why pay it if I don't have to?

wmb194

poseidon1 said:

wmb194 said:

niklas19 said:

I'm holding a small amount of TRI stock which last year distributed a "return of capital".  For each share there's a distribution of around $4 per share and a reverse stock buyback.  As a result each share was replaced by $4 cash distribution and a fraction of a new shares.  After the distribution the portfolio value didn't change.

I'm wondering how to declare that on self assessment?  It makes me think that this is a cost-basis reduction and should be treated in terms of CGT but not sure whether this is income (like dividends) or capital.

The whole operation has been described in details by reuters (google: Thomson Reuters return of capital) - don't want to paste links for obvious reasons.

Is there a prospectus or suchlike relating to this? Usually there’s a tax section in them that’ll give you an idea of how it should be treated.

It is a long standing problem for investors holding shares quoted on foreign markets. The prospectus issued on capital reorganisations such as the current example, will tend to only address the domestic tax implications for investors where the security is listed. 

In the present example it is a Canadian holding so, Canadian tax rules would be covered. There is no automatic read across of the Canadian tax rules to the UK, so any statement related to Canadian taxes, does not necessarily apply to the UK treatment of the transaction.

For the UK perspective, one must go back to first principles as set out in primary tax legislation as varied by case law - see HMRC internal manual below on foreign company dividends and distributions.

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim5210

Understandably, navigating these complicated rules is the natural preserve of tax accountants rather than amateur investors.

In the OP's case, given he states the amounts applying to him are relatively small, therefore rather than paying for specialist advice he could take a pragmatic view and treat the cash received as an untaxed foreign dividend with no associated foreign tax credit.

OP, would you pay dividend tax at 8.75% or 33.75% on this basis?

Often these multi-nationals - and this one used to have a secondary London listing - will cover multiple jurisdictions and there is a section on US federal taxation but we're out of luck for the UK.

poseidon1

niklas19 said:

OP, would you pay dividend tax at 8.75% or 33.75% on this basis?

I could take that approach without delving into details of this particular distribution just to be on the safe side - as I said, my holding is rather modest and the aforementioned distribution, in my case, is literally ~$50.

There's no foreign tax deducted at source. I'd still prefer to understand though if this is income or capital gains just for future reference and even though the tax implication would be probably <£10 if I take the dividend route, why pay it if I don't have to?

I hear you, but to get definitive and accurate advice you would need to pay for it.

 Very unlikely to find anyone on this forum  either sufficiently qualified or willing to delve into a foreign prospectus  to understand how HMRC would treat a foreign company reorganisation distribution.

You need to decide whether retaining such a small direct investment in a foreign company, is worth all the attendant hassle and head scratching moments. I had to make such a decision with an American investment ( which shrunk substantially in value ) and decided in the end to offload it.

wmb194

niklas19 said:

OP, would you pay dividend tax at 8.75% or 33.75% on this basis?

I could take that approach without delving into details of this particular distribution just to be on the safe side - as I said, my holding is rather modest and the aforementioned distribution, in my case, is literally ~$50.

There's no foreign tax deducted at source. I'd still prefer to understand though if this is income or capital gains just for future reference and even though the tax implication would be probably <£10 if I take the dividend route, why pay it if I don't have to?

From the HMRC SAIM5210 link Poseidon provided: "The question is whether or not the ‘corpus of the asset’ is left intact after the distribution. If not, the receipt will be a capital receipt; if it is, the payment will be chargeable as income. The corpus is not disturbed by payment of a large dividend simply because it is large - see HMRC v First Nationwide [2012] EWCA Civ 278."

The 'corpus' of TRI remains so for what it's worth I'd say this is a foreign dividend.

niklas19

@wmb194 Researching this topic, I've found similar answer here: 

hxxps://www.accountingweb.co.uk/any-answers/return-of-capital-on-overseas-share

I'm not sure how to understand the "corpus" and what impacts it.  In this case, TRI is distributing capital from proceeds of LSEG transaction where it disposed its stake in other company, so I guess that impacts the corpus?

wmb194

niklas19 said:

@wmb194 Researching this topic, I've found similar answer here: 

hxxps://www.accountingweb.co.uk/any-answers/return-of-capital-on-overseas-share

I'm not sure how to understand the "corpus" and what impacts it.  In this case, TRI is distributing capital from proceeds of LSEG transaction where it disposed its stake in other company, so I guess that impacts the corpus?

I would say not materially, the business continues for the most part as normal and it currently has a C$102bn market cap.

"The corpus is not disturbed by payment of a large dividend simply because it is large - see HMRC v First Nationwide [2012] EWCA Civ 278."