The Lemon Fool

Looking over my Hargreaves Lansdown statement I’ve noted that Glencore’s May 2018 “dividend” is classified as Return of Capital. The Glencore website is vague on the tax treatment and states that the company makes two distributions a year out of the “capital contribution reserves of the Company” which are not subject to Swiss WHT. There is no B-share scheme or share consolidation.

As UK tax payer I’m assuming I’ll have to pay some form of tax on these distributions. The “return of capital” descriptions indicates that this can be treated as a capital gain rather than income.

My initial thought is that the distribution reduces the base cost of my Glencore holding: if my purchase price was 200p, the May 2018 distribution was 7.35p, my new base cost will be adjusted to 192.65p. Assuming I don’t sell any Glencore shares, no tax is payable in the 2018/19 tax year. However, when I do sell the shares at say 350p, then my capital gain in that tax year will be 157.35p (rather than a 150p gain, using the 200p price on my original contract note). The distributions are effectively rolled up and become taxable when I make a sale of shares.

Does anyone have any views / evidence about how HMRC treats these distributions?

Thanks

I have held some Glencore shares (with Hargreaves Lansdown (HL)) since 2013.

In 2014 and 2015 HL would write a letter to me and explain that the payment was a return of capital and subject to capital gains tax and not income tax. The letters have since ceased but in all tax years the payments do NOT appear on the HL tax certificate provided for the annual tax return.

Now looking at my account in HL, I see that the majority (but not all, eg those in 2017) of payments are listed as capital transactions and reduce the original cost figure. I am maintaining my own spreadsheet for CGT cost purposes for when I sell.

I now have to try and find out why some payments (eg those made in 2017) are not shown as capital transactions on my HL account. The 2017 payments were not on the 17/18 tax certificate so I have not declared them for income tax purposes.

Maybe someone can help me with this conundrum before I contact HL ?

surreycanary wrote:Now looking at my account in HL, I see that the majority (but not all, eg those in 2017) of payments are listed as capital transactions and reduce the original cost figure. I am maintaining my own spreadsheet for CGT cost purposes for when I sell.

They are returns of capital, so the relevant tax is CGT. I think you can put them through the current year's calculation, which is a non-calculation if you are within the annual amount. Alternatively you subtract them from the base cost, so CGT, if any, is due when you finally sell.

Thank you. Glad to hear I was on the right track.

This entry is just in case there are readers who held Glencore shares in 2017 with Hargreaves Lansdown (HL).

On24 June above I wrote "I now have to try and find out why some payments (eg those made in 2017) are not shown as capital transactions on my HL account. The 2017 payments were not on the 17/18 tax certificate so I have not declared them for income tax purposes."

I have written to HL. The reply says that a "third party provider" showed the 2017 dividends as overseas dividends rather than return of capital payments and so the account entries in 2017 were incorrect (and different to previous years). I am assured that cost reductions will appear on my account shortly.