Share cancellation (eg AV, GACB prefs) - tax implications?

RMurphy195

Following the tax changes over the last couple of years, I transferred some of my pref shares from a non-ISA share dealing account into an ISA one (I'd had them for years, when the threshold was much higher). And of course manage them to keep below the threshold.

However, the recent AV pref shares cancellation has resulted in what would have been a capital gain had I sold the shares (e.g. bought at the going rate but cancelled and a slightly higher amount) into a "special dividend" (I voted no, by the way!)

So is the light dawning - am I going to get hit with a tax bill due on the non-ISA shares to the way in which the money returned is labelled (which would mean, that I would be better off if I'd sold the shares!)

And as a supplementary, I haven't been able to find out if the GACB cancellation went through ...

wmb194

RMurphy195 said:

Following the tax changes over the last couple of years, I transferred some of my pref shares from a non-ISA share dealing account into an ISA one (I'd had them for years, when the threshold was much higher). And of course manage them to keep below the threshold.

However, the recent AV pref shares cancellation has resulted in what would have been a capital gain had I sold the shares (e.g. bought at the going rate but cancelled and a slightly higher amount) into a "special dividend" (I voted no, by the way!)

So is the light dawning - am I going to get hit with a tax bill due on the non-ISA shares to the way in which the money returned is labelled (which would mean, that I would be better off if I'd sold the shares!)

And as a supplementary, I haven't been able to find out if the GACB cancellation went through ...

Yes, GACA and GACB are to be cancelled as well. They’re due to delist on 06/06 and the proceeds are to be paid on 12/06. 

These are still trading so you still have time to sell them for just a capital gain or loss but the bid price doesn’t look to be very close to the overall cancellation offer. To decide what’s best you’d need to work out the tax if you held to cancellation.

For AV.A and/or AV.B shares outside the Isa, yes, you need to calculate the capital gain or loss based on the cancellation price of 100p per share. 

Then there are the dividends: a special dividend, an accrued dividend and the voting fee which is classed as a dividend. The zero tax allowance on dividends is only £500pa so unless you’re a very low earner you’re likely to need to pay 8.75% as a basic rate taxpayer, 33.75% higher.

RMurphy195

wmb194 saID

Yes, GACA and GACB are to be cancelled as well. They’re due to delist on 06/06 and the proceeds are to be paid on 12/06. 

These are still trading so you still have time to sell them but the bid price doesn’t look to be very close to the overall cancellation offer. To decide what’s best you’d need to work out the tax if you held to cancellation.

For AV.A and/or AV.B shares outside the Isa, yes, you need to calculate the capital gain or loss based on the cancellation price of 100p per share. 

Then there are the dividends: a special dividend, an accrued dividend and the voting fee which is classed as a dividend. The zero tax allowance on dividends is only £500pa so unless you’re a very low earner you’re likely to need to pay 8.75% as a basic rate taxpayer, 33.75% higher.

Thanks wmb. Too late for the AV.B shares however overall selling-off my non-ISA GACB shares earlier today worked well overall and has saved me a few bob. As you say the allowance went down to £500 last year so there was some fine-tuning back then. Pity I chose to "transfer" shares other than my AV.B ones into the ISA back then!

wmb194

RMurphy195 said:

wmb194 saID

Yes, GACA and GACB are to be cancelled as well. They’re due to delist on 06/06 and the proceeds are to be paid on 12/06. 

These are still trading so you still have time to sell them but the bid price doesn’t look to be very close to the overall cancellation offer. To decide what’s best you’d need to work out the tax if you held to cancellation.

For AV.A and/or AV.B shares outside the Isa, yes, you need to calculate the capital gain or loss based on the cancellation price of 100p per share. 

Then there are the dividends: a special dividend, an accrued dividend and the voting fee which is classed as a dividend. The zero tax allowance on dividends is only £500pa so unless you’re a very low earner you’re likely to need to pay 8.75% as a basic rate taxpayer, 33.75% higher.

Thanks wmb. Too late for the AV.B shares however overall selling-off my non-ISA GACB shares earlier today worked well overall and has saved me a few bob. As you say the allowance went down to £500 last year so there was some fine-tuning back then. Pity I chose to "transfer" shares other than my AV.B ones into the ISA back then!

It's always easy with hindsight but the bid/offer spreads on preference shares are usually quite wide plus you'd have had to pay 0.5% stamp duty as well so you'd still have lost out to some extent.

RMurphy195

wmb194 said:

It's always easy with hindsight but the bid/offer spreads on preference shares are usually quite wide plus you'd have had to pay 0.5% stamp duty as well so you'd still have lost out to some extent.

Plus brokerage charges for the sale and the purchase! All part of weighing-up the cost of moving the shares from non-ISA to ISA. Now pondering what's going to happen next - will the £500 zero-rated be reduced to Nought, will the tax on dividends go up from 8.75%, will the stamp duty on purchases go up? Will pref share prices move down(they seem a little peaky since last summer) Fortunately the ISA contribution limit looks like it won't go down - maybe ... Ho hum ....

DRS1

Look on the bright side - you could have a CGT loss on the AV.B (presumably in this tax year) which you can set against the gain on the GACB..

RMurphy195

DRS1 said:

Look on the bright side - you could have a CGT loss on the AV.B (presumably in this tax year) which you can set against the gain on the GACB..

I should be so rich! However just discovered that one of my potential replacement prefs - ELLA - has its XD date in 2 days time ...

wmb194

RMurphy195 said:

DRS1 said:

Look on the bright side - you could have a CGT loss on the AV.B (presumably in this tax year) which you can set against the gain on the GACB..

I should be so rich! However just discovered that one of my potential replacement prefs - ELLA - has its XD date in 2 days time ...

The prefs pool is small and risk/reward they're quite expensive but people are speculating that more will be cancelled at a 10%+ premium. 

What do you want? A pseudo annuity? If you're looking for ideas you could consider long dated gilts. 5.5% yields compare well with c.6% subordinated, relatively very iffy preference shares.

https://giltsyield.com/bond/

RMurphy195

Thanks wmb - I do use them in part as a pseudo annuity, as a small part of my overall savings portfolio. Gilts do seem worth a look, esp with the current spike in prefs prices.  The benefits of prefs over an annuity are, for me

• Better returns by a factor of 2 or 3 at the time we purchased some of them
• With an annuity,  your capital vanishes when you die (unless its in the 1st few years in which case some of it comes back to your estate), the prefs are still available to be sold
• In an emergency, the prefs can be sold to get capital back (We did this a few years back to raise capital for a house move, until ours was sold)
• Depending on timing, the prefs may increase in value - some of our cancelled prefs have given us a 10% return(taking into account costs) over the last couple of years, plus an average of 6% pa in dividends.
• Not forgetting that the annuity income would be subject to income tax, but dividend income with an ISA is not

My LLPE prefs gave quite a spectacular return, having bought them at 38p originally but these were the exception!