Admiral - June 2016 return of capital

[88V8]

Fools will recall the discussions here (or at any rate, here as I write) in HYP Practical
http://boards.fool.co.uk/admiral-adm-re ... e#13458629

concerning the tripartite October payment by Admiral, pertaining to their June dividend :

The Directors have declared a total Interim dividend of 62.9 pence per share, comprising three elements; 36.8 pence per share Normal Dividend; a Special Dividend of 14.2 pence and a further additional Return of Capital of 11.9 pence, representing an element of surplus cash not required for solvency. The additional 11.9 pence per share is the second instalment of the additional Return of Capital.

The question discussed in HYP was twofold: first, whether the Return of Capital should be treated as dividend for one's record/statistical purposes and, secondly whether the RoC would be taxable as income.
For the purpose of this Board, the second question is of interest, and a post in the Other Place this morning appears to have clarified:

From Halifax this morning.
Clarification of tax treatment.
You received a dividend payment on 3rd June 2016 from Admiral Group. This payment was paid to your account as a dividend but actually consisted of 51.5 pence dividend (income payment) and a Return of Capital at a rate of 11.9 pence per share (capital payment).
We will amend your Consolidated Tax Voucher to reflect the income payment of 51.5 pence.

My bold.

So, Halifax have decided that the RoC was Capital not income, or at any rate not dividend income..
Which begs the question, how it will be taxed.

No doubt to be continued.

V8

[scrumpyjack]

The return of capital will be treated as a partial disposal of your shareholding giving rise to a capital gain or loss. The disposal computation will I expect eventually be set out on Admiral's website.

This used to be quite common when companies could let shareholders decide whether they wanted the payout as income or capital and had B/C share schemes to put it into effect.

Osborne then made these schemes ineffective by making any payout where a shareholder had a choice between income or capital, a dividend for tax purposes. It is still possible to make a capital distribution but the shareholder must have no choice on the matter. This is what Admiral have done here.

[88V8]

As regards the tax treatment of a partlal disposal, Gen posted a reply in a parallel TMF thread. Here saved for posterity are his words of wis:

If it isn't a dividend, it is almost certainly taxed as a capital distribution. It will count as a 'small' capital distribution, being much less than 5% of the capital value of the shares. That means that you can opt to use a simple CGT treatment, which normally just says that there is no immediate tax effect but you take it off the base cost of your shares. I.e. if and when you eventually sell the shares, you calculate your gain not as:

(sales proceeds) - (what you paid for the shares)

but as:

(sales proceeds) - ((what you paid for the shares) - (the capital distribution))

That increases the gain you calculate at that point by the amount of the capital distribution - so in effect, the amount of the capital distribution is held over for CGT purposes until then, and then both it and the normal capital gain are taxed.

If by any chance the capital distribution is more than the base cost of your shares, that doesn't apply. I don't think that at all likely, so I'll just say to ask again if it is.

It's also conceivable that you might actually want to be taxed on a capital gain or loss arising from a capital distribution, either as a gain to use up your CGT allowance more effectively or as a loss to offset against gains already over the CGT allowance. If so, as I said above you can opt for the 'small' capital distribution treatment, but you can also opt for the standard treatment. However, the amount of the gain or loss under the standard treatment will probably be small and its calculation a bit messy: you will probably have easier ways of getting the gain or loss you need! (And you won't have a firm figure for what you need until close to the end of the tax year...)

Having said all that, Admiral have said in their interim results that the payment is part of a dividend and Halifax have told you that it is not. I'd be inclined to put that contradiction to both of them. I.e. write to Halifax pointing out that the company's interim results say that the 11.9p is part of the interim dividend: why are they instead describing it as a capital payment? And to Admiral investor relations saying that your broker is describing it as a capital payment - could they confirm whether it is a dividend as described in their interim results or a capital payment as described by Halifax?

In each case, take care to ask it as a factual question about the nature of the payment, not a request for advice. That's because neither will be authorised to give you tax advice, and they'll steer well clear of doing so. I.e. phrases like "What should I do?" or "Please advise me" are likely to lead to clamming up...

Gengulphus


AFAIC, if my broker ultimately treats it as part div and part disposal on my Tax Cert, that's how it will be.

V8

[PinkDalek]

AFAIC, if my broker ultimately treats it as part div and part disposal on my Tax Cert, that's how it will be.

V8

There's a further thread at the LemonFool version of High Yield - HYP Practical which you may find of interest:

viewtopic.php?f=15&t=222

Particularly the latest reply by Gengulphus.

PD

[Raptor]

I have taken to e-mail investor relations to clarify how they believe it as meant to be treated. Will await their reply.

Raptor.

[scrumpyjack]

Having read their RNS I suspect that it is in fact a dividend and they have not structured it as a capital payment. The total dividend is highlighted in the announcement and then in a note they describe how it is funded - split between normal dividend, special dividend and capital return. Lots of other companies have paid capital returns and most have been paid as a dividend since HMG removed the option for companies to give investors the capital/dividend option.

Hargreaves Lansdown's website describes the whole payment as a dividend. They are usually fairly switched on and I would have thought they would highlight it if some was in fact a return of capital via a tax effective scheme. It will interesting to hear what response you get from ADM's investor relations people.

[Raptor]

From Admirals Investor relations:-

Firstly I can confirm the 11.9p was technically a dividend and should be treated that way. We used the term "return of capital" in the results to differentiate this amount from the recurring normal and special dividend and to reflect the origins of the money internally (Surplus capital we held as a result of applying the Solvency II regulation).

Ive included a little bit more background about the "return of capital" element below:

The 11.9p forms part of a return of capital that we outlined in our FY2015 results and repeated at HY2016. The Group has surplus capital and our philosophy is to return excess capital to shareholders, hence we have indicated that (at the date of the HY2-016 results), it is the Group's intention to return to shareholders a sum in the range of £100-150 million.

We returned £33 million of this with the FY15 final dividend and the dividend declared below forms the second part of this return (another £33 million). We currently plan to return more capital, of c£20 million with the FY 2016 dividend in March 2017.

At this point, you should expect to see an 'additional return of capital' over the next few reporting periods until the currently guided total of £100-150 million is achieved, after which this additional return of capital will cease.

In addition, you should note that the Group will continuously reassess this position and if market conditions or business plans change or other circumstances change, then these numbers could change.

Raptor.

[greygymsock]

i hold some admiral shares directly (certificated), and the dividend confirmations from the registrar (capita) include these returns of capital as dividends. this applies to the payments in both june and september 2016.

in both cases, the only figure in £ which relates to my shareholding (as opposed to figures which are per share) is for "dividend payable", and this amount includes the returns of capital. also, these total amounts were paid directly into my bank account, in accordance with my dividend mandate; i don't think this mandate would apply to payments that didn't count as dividends.

the june confirmation includes the description: "final & special dividend rate: 33.6p and 29.8p per share respectively". it doesn't even mention return of capital. however, the relevant RNS said that the 29.8p special dividend was regarded as including a 11.9p return of capital.

the september confirmation says: "interim, special dividend & return of capital rate: 36.8p, 14.2p & 11.9p per share respectively".

[Raptor]

Just received this from iWeb customer services (should apply to Halifax as well).

Thank you for your e-mail and the information from Admiral Group.
I have spoken to the dividend department regarding this information, and they are going to go back to Admiral Group, to get full clarification, so that we do not give out incorrect information. and we will contact you in due course.


Raptor.