Taxation / CGT on US shares Dr Pepper Snapple

[buzz]

I've been trying to help my elderly sister-in law with her shares in Dr Pepple Snapple (DPS) which is to merge with Keurig Green Mountain - and it's more complicated than I thought. Any help and/or suggestions much appreciated.

The shares are held with Computershare US following the split of DPS from Cadbury way back. There's also a fair number of additional shares taken in lieu of divis. In all 233.62 shares worth about $24,240 USD or £21,450 at yesterday's price. The Cadbury shares were bought in the early '90s.

The first problem is that I haven't found much detail from the DPS shareholders site, in particular the date. According to press reports it's scheduled for "before 30 June" which doesn't leave much time if correct. https://investorplace.com/2018/03/dr-pepper-snapple-group-inc-stock-take-the-merger-premium-and-run/ Anyone know more?

The second is taxation. The reported offer is a special dividend of $103.75 plus one share in the merged company per DPS share. So $24,239 or £18,228 in divis. Which is nice except that I assume she'll pay the usual US witholding tax at 15% which I make a whopping £2734.

So I thought it would make sense to sell the whole holding, pay the UK CGT due and avoid her worrying about shares in a US company she's never heard of. I assume then there would be no US tax to pay? It looks as if she paid about £2800 for the Cadbury shares but as yet hasn't found the contract note. If so, I think that puts the cost of the cost of the DPS shares at about £750, so a gain of about £20,700 less allowance of £11,700 gives £9,000 net. (Ignoring the shares in lieu of divis.) CGT at 10% would then be £900. I suspect she may have loses on several other shares to reduce that further if I she can find the details. If the Cadbury contract note can't be found how does that leave things?

The other possibility is to sell enough shares up to her CGT allowance and take the special divi plus shares on the remainder. Selling costs for the full holding look like being about $90 including a wire fee. Haven't done the sums on that yet. All help gratefully received.

Moderator Message:
Moved to Taxes as this isn't really a DAK. (chas49)

[PinkDalek]

… It looks as if she paid about £2800 for the Cadbury shares but as yet hasn't found the contract note. If so, I think that puts the cost of the cost of the DPS shares at about £750, so a gain of about £20,700 less allowance of £11,700 gives £9,000 net. (Ignoring the shares in lieu of divis.) CGT at 10% would then be £900. I suspect she may have loses on several other shares to reduce that further if I she can find the details. If the Cadbury contract note can't be found how does that leave things? ...

When Dr Pepple Snapple demerged from Cadbury's (in 2008 or so), this would presumably have involved splitting her CGT base cost in Cadbury's into two parts (which I now see you mentioned).

I've found this https://www.taxationweb.co.uk/forum/cad ... ml#p119084 which suggests the split was as follows and is probably how you got to your about £750:

The CGT cost adjustments were:
100% of cost pre-scheme for original Cadbury shares, then

72.449% for the Cadbury ord after the scheme
27.551% for Dr Pepper Snaffle.

Kraft took over Cadbury a couple or so years later. Was this a returnable CGT event for your sister and, if so, maybe there were some papers from around that time. If not, it may be reasonable to show on the CGT pages or on the computation that the £750 or so is an estimate and provide the workings.

I had a scout around here http://investor.drpeppersnapplegroup.com/sec-filings and one of those Forms may give some more detail regarding the relevant date. I think it is DEFM14A Official notification of matters relating to a merger or acquisition but I haven't read it other than to see the annual meeting of stockholders of Dr Pepper Snapple Group, Inc. is set for June 29, 2018.

Not much help, sorry.

[buzz]

I had a scout around here http://investor.drpeppersnapplegroup.com/sec-filings and one of those Forms may give some more detail regarding the relevant date. I think it is DEFM14A Official notification of matters relating to a merger or acquisition but I haven't read it other than to see the annual meeting of stockholders of Dr Pepper Snapple Group, Inc. is set for June 29, 2018.

Not much help, sorry.

Thanks, that's very helpful. All I could find was that they need several approvals at the meeting next Friday connected to the merger, so it seems I've still got a few days at least to weigh up the options. Couldn't find any timetable so seems that's yet to be announced. They don't make it easy do they?

[vrdiver]

I hold some US shares and sell only as many as will fit under the CGT radar. That way I avoid having to declare any calculations as well as avoiding the tax.

In your SIL's case, assuming no other complications, I'd sell part this tax year and the remainder at the beginning of next (assuming no desperate need for the cash). If they do really well she might need to leave a third tranche until the following tax year.

The advantages of not having to "show your homework" or getting bogged down with an HMRC query are worth it to me. YMMV.

VRD

[PinkDalek]

I had a scout around here http://investor.drpeppersnapplegroup.com/sec-filings and one of those Forms may give some more detail regarding the relevant date. I think it is DEFM14A Official notification of matters relating to a merger or acquisition but I haven't read it other than to see the annual meeting of stockholders of Dr Pepper Snapple Group, Inc. is set for June 29, 2018.

Not much help, sorry.

Thanks, that's very helpful. All I could find was that they need several approvals at the meeting next Friday connected to the merger, so it seems I've still got a few days at least to weigh up the options. Couldn't find any timetable so seems that's yet to be announced. They don't make it easy do they?

No it's not easy to find the detail. Maybe it was in one of those earlier filings dated Jan 29-31, perhaps this one:

8-K Report of unscheduled material events or corporate event Jan 31, 2018

It does have an Effective Time section but I don't envy you if you are going to study the document, even using Ctrl-F or similar. "Effective Time" is mentioned 146 times and "Closing Date" 38 times.

[PinkDalek]

… In your SIL's case, assuming no other complications, I'd sell part this tax year and the remainder at the beginning of next (assuming no desperate need for the cash). If they do really well she might need to leave a third tranche until the following tax year. ...

The problem there would appear to be the withholding tax hit on the special dividend.

[pochisoldi]

… In your SIL's case, assuming no other complications, I'd sell part this tax year and the remainder at the beginning of next (assuming no desperate need for the cash). If they do really well she might need to leave a third tranche until the following tax year. ...

The problem there would appear to be the withholding tax hit on the special dividend.

1) W8-BEN form to keep the withholding tax down to the treaty rate rate (otherwise it's an IRS reclaim to get a dollar "check" for the difference).
2) Claim tax relief on the SA foreign pages (only good for US dividends outside the nil rate £2000 dividend allowance, AND you have UK tax to pay/already paid elsewhere, 'cos its treated as credit against UK tax payable).

(If I understand the situation correctly)

PochiSoldi

[PinkDalek]

… In your SIL's case, assuming no other complications, I'd sell part this tax year and the remainder at the beginning of next (assuming no desperate need for the cash). If they do really well she might need to leave a third tranche until the following tax year. ...

The problem there would appear to be the withholding tax hit on the special dividend.

1) W8-BEN form to keep the withholding tax down to the treaty rate rate (otherwise it's an IRS reclaim to get a dollar "check" for the difference).
2) Claim tax relief on the SA foreign pages (only good for US dividends outside the nil rate £2000 dividend allowance, AND you have UK tax to pay/already paid elsewhere, 'cos its treated as credit against UK tax payable).

(If I understand the situation correctly)

PochiSoldi

Good point on the W-8BEN - I’d rather assumed the OP’s sister-in-law would already have one in force but definitely something to establish.

The foreign tax credit relief for the withholding tax (at the treaty rate) is limited to the UK Income Tax payable on those foreign dividends. It can’t be offset against Income Tax payable generally/elsewhere if that’s what you are saying.

If the s-i-l pays basic rate on the dividends, she’d only get relief for the same 7.5% but has no further UK liability.

Either way, any wht is surely a tax cost, whether or not there is additional UK Income Tax to pay.