Standard Life to return £1.7bn to shareholders at 73p a share. What are the tax implications?

4th September 2014

img

Standard Life plc is to sell its’ Canadian business to a subsidiary of Manulife for approximately £2.2 billion. Standard Life will return £1.75bn to shareholders through a return of cash at the rate of 73p per share.

Hargreaves Lansdown has issued a note with a Q&A including a consideration of the tax implications. Richard Hunter, Head of Equities, Hargreaves Lansdown says: “The extremely well received announcement is a winner on two fronts. It both enables a generous return of cash to shareholders, whilst also enabling Standard Life to hone in further on its asset management business. However investors could be subject to tax on this cash return payment so should consider their options carefully to avoid a painful tax bill.”

How will the cash be distributed?

This is a proposal at this stage. Standard Life intends to distribute the cash via a B or C share scheme where shareholders will be issued unlisted, non-voting bonus shares. These shares can either be redeemed by Standard Life for cash or shareholders can accept a special dividend after which the bonus shares will be cancelled.

Is this a windfall or extra money?

No. The issue of unlisted, non-voting shares is a mechanism to return cash.

How will the existing shares be affected?

There will be a share consolidation at a rate to be announced in the future. Shares are being consolidated to maintain the share price, but shareholders will end up with fewer shares.

When will this happen?

The return of cash should take place in the second quarter of 2015.

How will the cash back be taxed?

Shareholders are expected to have the option to receive the payment as capital or income via the B or C share scheme. The tax rate paid will depend upon whether investors opt for a capital or income payment and the individual’s circumstances. Taxes are always subject to change and sometimes at short notice.

The exact rate of tax which may be paid on this cash return has not yet been confirmed by Standard Life. In general terms, dividend income will be subject to income tax at a maximum rate of 37.5% depending upon the other taxable income in the tax year.

Capital payments will be subject to capital gains tax at a maximum rate of 28% (18% if the gain plus taxable income does not exceed £41,865 in this tax year) although if the gain falls within the annual capital gains tax allowance (£11,000 for 2014/15) there will be no tax to pay.

Importantly shares held in an ISA or SIPP will not be subject to any additional tax.

What happens next?

Shareholders will receive further information in due course which will include the detail of the proposal and how to make the election.

9 thoughts on “Standard Life to return £1.7bn to shareholders at 73p a share. What are the tax implications?”

  1. Carolyn says:

    If I purchase more shares now will these extra shares attract the extra 73 pence?

  2. tony says:

    shareholders will be no better off, because the value of our holding will be reduced by 73p per share by way of the share consoildation – we will have less shares, so less dividend in the future ?

  3. Divest says:

    I just read the Questions and Answers document on the SL site and am not happy. The 73p is like of a return of capital (ROC) that we will be taxed on as income (not like a ROC which reduces the ACB of ones holdings) no matter if you choose B or C shares. Page 3 of the document shows no benefit to shareholders. We pay tax on the 73p as income, have less stock (as the consolidation reduces ones holdings by 9/11ths), have a reduce market value to the stock (since it is really a ROC) AND probably less future dividend per share. Perhaps I misunderstand.

  4. Divest says:

    Paragraph #1 on the SL Q&A page may have the information you seek. It appears you need to purchase by March 10/15, the day before
    ex-dividend, as you must be an Existing Ordinary Shareholder of record
    by 6:00 pm on March 13/15.

    1. JANAS says:

      Ex-dividend for SL is April 9th 2015

  5. keith says:

    I just spoke with SL because what was written about all of
    this was presented by SL in such a way as to make it more confusing than it really is. Firstly, tony is dead right… shareholders will not be better off as what SL are giving with one hand they are taking away with the other. In fact, as Divest mentioned, if our shares number is reduced ‘we will be worse off’ as individual dividend payouts are calculated directly on the NUMBER of shares held.

    The real question is why is SL doing this consolidation in the first place?
    SL’s rep could not give me an answer to this direct question even though I pressed him to provide one. The wording and prominent placement of the Canadian sale and 73p on the share looks as though SL want shareholders to see this rather than the share consolidation/reduction, possibly influencing a higher yes vote.

    Unless SL give me a good reason for doing this in the first place I am
    voting NO! I requested the SL rep to arrange a callback by someone in the company that can properly answer my question. I will post their answer here when I get it.

  6. Andy says:

    I too thought this was going to be in the nature of a windfall but was suspicious on reading in the Q&A circular that the value of your holding post consolidation would equal the value before PLUS the cash payout. To my simplistic mind does that not mean that you need to immediately reinvest the cash payout in new shares to preserve the value of your holding ? Not really sure what benefit there is to shareholders in this. I know I’m repeating what other posters are saying but can anyone advise to the contrary ?

    1. keith says:

      I think they are counting on most people to have this mindset so that they will just go with the flow and vote yes. By my calculations i believe this is a bad idea.

  7. keith says:

    Well, SL finally got back to me regarding my concern about not making it crystal clear to shareholders that both the share reduction/consolidation and 73p per share payout will be put to vote (by shareholders) this month. I was also concerned about the language used by SL in both their posted letter and downloadable circular that appeared to bias the outcome of the vote to favour a yes result, challenging their view that a yes vote will be financially ‘neutral’ for shareholders and, finally, declaring a purpose for the consolidation in the first place. So here is their reply:

    “Shareholders are being asked to vote on the following resolution at the General Meeting on 13 March 2015.
    ·
    To approve the return of 73 pence per share, the implementation of the B/C share scheme, and the share consolidation

    The circular and notice of meeting which you can read at
    http://www.standardlife.com/generalmeeting explains this in full.

    If shareholders voted against the resolution, then the return of value and
    share consolidation would not go ahead in the current way they’ve been
    proposed at this time.

    (My words: Importantly missing from the start of next paragraph is, “If shareholders voted FOR the resolution, then…” )

    In order to try to maintain the market price for Ordinary Shares at
    approximately the same level as immediately prior to the implementation
    of the return of value B/C Share Scheme, a Share Capital Consolidation of the Existing Ordinary Shares will take place. The return of value of 73 pence per existing ordinary share, plus the value of your new holding of New Ordinary shares should, subject to market fluctuations, approximately
    equal the value of your existing ordinary shares.

    The net effect is theoretically neutral to shareholders – this is the same
    as a distribution of value via a dividend (where the share price falls
    by the same amount as the dividend paid).”

    Side-stepping in true politician style, the argument of ‘reduced future dividends’ and the slightest hint of intrinsic purpose for the share consolidation had been ignored.

Leave a Reply

Your email address will not be published. Required fields are marked *