Shell - A or B?

[EmilyGilmore]

Afternoon,

I have approx £2k of Shell B shares. However, my dividend payments, while welcome, aren't an amount that's worth getting excited about so I called the registrar to ask if I could join the scrip dividend scheme.

As all of you probably know, the B shares aren't issued anymore, but rather A shares. My scrip dividends would be in these A shares, as would the dividend on the new A shares.

Can someone explain what the difference is and whether it matters please? I've Googled but I'm not much clearer...

Thanks

[NeilW]

The A shares are subject to a 15% Dutch withholding tax on the dividends paid in cash, but the B shares are not.

When you receive the A shares as a scrip share you don't receive a dividend (or get charged withholding tax). Instead your capital gain grows by the value of the new shares. That's of value if you're a higher rate tax payer or receive more than £5000 of dividends a year outside an ISA/pension as it defers the tax charge and changes it into a capital gain rather than income.

Gory details here: https://www.taxation.co.uk/Articles/2011/09/28/281031/sure-shell

[Gengulphus]

The A shares are subject to a 15% Dutch withholding tax on the dividends paid in cash, but the B shares are not.

More generally, both UK and Dutch tax treat dividends on the A shares as Dutch dividends, but dividends on the B shares as UK dividends. For UK taxpayers (who are not also Dutch taxpayers) that implies the 15% Dutch withholding tax on the A shares, and:

* For shares held in ISAs, no ability to reclaim the Dutch tax - countries other than the UK generally don't recognise ISAs as having any special tax status. The same generally goes for other tax shelters (e.g. CTFs), except for SIPPs.

* For shares held in SIPPs, I'm not sure, because other countries often do recognise pensions as having a special tax status. I suspect no ability to reclaim the Dutch tax, but that's only on the basis that I've never heard that it is possible.

* For non-tax-sheltered shares, the 15% withholding tax paid can be offset against the UK tax payable on that particular item of dividend income (but not other income - not even dividend income from other shares). That's of no value if your total dividend income is less than £5,000 (which may well fall to £2,000 in the future). If it's more than that, the value in terms of reducing the UK tax payable is probably half of the withholding tax for basic-rate taxpayers (since their Income Tax rate on dividends is 7.5%) and all of the withholding tax for higher-rate and additional-rate taxpayers (since their Income Tax rates on dividends are (well) over 15%).

If you have to fill in a tax return, having foreign dividends totalling over £300 also means that you have to fill in the Foreign supplementary pages (for paper tax returns) or their online equivalent. That involves producing separate dividend income totals for each country, so a bit more admin.

When you receive the A shares as a scrip share you don't receive a dividend (or get charged withholding tax). Instead your capital gain grows by the value of the new shares. That's of value if you're a higher rate tax payer or receive more than £5000 of dividends a year outside an ISA/pension as it defers the tax charge and changes it into a capital gain rather than income.

Gory details here: https://www.taxation.co.uk/Articles/2011/09/28/281031/sure-shell

Haven't checked out that link, beyond discovering that it requires subscription. (There is an alternative of registration for 2 weeks' free access, but I keep my number of online registrations down for purposes of spam avoidance, password security, etc, and that isn't enough to tempt me!)

But I believe what NeilW says is correct - though I will add a couple of comments:

First, if one ever plans to start taking dividend income from the holding, the withholding tax will come into play at that point. (Inside a tax shelter, I believe one could avoid that by taking the scrip shares and then promptly selling them, though at a small financial expense in the form of selling costs and a hassle cost in terms of remembering to do the sales, plus the risk of significant share price movements if the sales are delayed by forgetting to do so.)

Secondly, for companies, scrip dividend schemes are basically low-level fundraising schemes. If and when a company decides that it's got sufficient capital, it will generally drop the scrip dividend scheme (quite possibly replacing it with a DRiP - Dividend Re-investment Plan, which does not have the same freedom from withholding tax). So if and when Shell decides that, the option of avoiding the withholding tax will probably disappear...

Gengulphus

[NeilW]

I went from Google which seems to bypass the block.

Try this link instead https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=8&ved=0ahUKEwijk-u95I7WAhWiIMAKHdfbBSYQFghEMAQ&url=https%3A%2F%2Fwww.taxation.co.uk%2FArticles%2F2011%2F09%2F28%2F281031%2Fsure-shell&usg=AFQjCNFB_wDQqLxnT-n5ry4Q4aegDlG9UQ

[MDW1954]

The revised link works fine, but don't try to print the article using the "print friendly option", or you'll be directed to a subscription page.

MDW1954

[EmilyGilmore]

Thanks everyone - that's really helpful.

Given that I don't want to pay the Dutch tax and that Brexit means everything relating to overseas tax/shares/dividends etc is a bit of an unknown quantity, I'm going to carry on getting my dividend payments and review things later...