4th September 2014
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.