Thoughts on a small predicament

[dspp]

I've seen the valid comments the others have made re CGT etc.

I have been in similar share schemes with another oil major once. As far as I can see he is well outside the 5-year lockup period so these are simply his shares.

Can I just check some numbers here please.

You say a 6-figure sum of shares. I assume from that you mean a 6-figure sum in value terms, e.g. £250,000 - $150,000 which would be about the number I would expect, rather than the alternative being (say) 100,000 shares x $65ea which would be quite a different matter. So could you firstly clarify that please.

Holding them in XOM is quite a concentration in one place, so shifting them largely (or maybe entirely) out of XOM is sensible for many reasons. How fast to do that and where to put it depends on many factors, one of which is the CGT bill that would be payable if he sold the lot now in one hit.

Are you able to tell us the average price of the accumulated shares, and the approximate time they have been held for (or at least date he started & stopped accumulating) ? If the average price is (say) $45 then the CGT implications are very different than if the average price was (say) $60. That helps get a feel for the appropriate timescale to try and tax manage the CGT issue, i.e. how many years to work it out within the CGT allowance. Oh, and how old is he ?

Regards, dspp

Sorry, I should have been clearer. Yes, a six figure sum in value terms. The average price is a tricky one to answer as he has never really taken an active role in his finances and so accumulated all these shares but never really retained any of the information as to the finer details of them. After just having a more in depth chat with him he seems to think he started paying in around 1980 and stopped paying in around 2000. To withdraw £12k per year to avoid CGT seems like the most sensible route but is likely to take 20+ years so am thinking if there's a way to find out what he paid in and then withdraw that portion as a lump sum and then £12k per year of the remainder. The big question is how do I find out what he paid in if he doesn't have in his possession any of this information? He's currently 73.

I read that the energy sector % of S&P is at historical lows, with XOM at/around 10 years lows. I'd expect this to revert back, and would be inclined to rotate out of the holding slowly over time rather sell everything in one go and risk jumping from an undervalued sector to an over valued one.

Funnily enough this is something that had crossed my mind as well. I've read a fair bit of info suggesting XOM is likely to turn things around in the not too distant future - maybe some wishful thinking but who knows?

1980 : $4 - 2000 : $40 So there could be a very sizeable taxable gain sitting in there.

If you have the total # of shares, and can make a stab at the dates, then personally I'd just spread them evenly (or pro rata with annual salary, if known) and take the mid-year share price. Otherwise you are going to need to contact the XOM share registrar and ask for help. Personally I wouldn't fuss too much at this stage, just use a pro rata approach to be able to run some approximations.

You can make some fag packet assumptions regarding the above then go to https://www.gov.uk/tax-sell-shares/work-out-your-gain and enter the relevant data. A lot will depend on his tax bracket. A lot will also depend on whether he actually needs any money, or if this is just a tidying up / risk mge exercise.

Given all this however it might be best to just work it off in £12k gain chunks one year at a time, so as to make a start on minimising the problem for (at least) inheritors.

Other Fools are far more knowlegeable on tax than I am. They will be along shortly I expect.

regards, dspp

[0x3F]

Funnily enough this is something that had crossed my mind as well. I've read a fair bit of info suggesting XOM is likely to turn things around in the not too distant future - maybe some wishful thinking but who knows?

I've been expecting a recession for some time, and in that event I'd expect XOM to fall - though possibly less than other sectors that are, in my opinion, hugely overvalued. It could be argued that waiting until a decent fall before doing a switch could help mitigate some CGT as the price would have gone down, but (hopefully) less than what you're going to buy so you'd pay less in CGT and gain on a relative basis. Just a thought.

As the other poster stated, it's difficult to know your position (risk toleramce, age etc). I'd still be inclined to rotate out of it slowly, which would also mean you could take advantages of CGT allowances over time and hopefully the sector will re-rate back up in the meantime.

-0x3F

[Wuffle]

A bit brutal this, but I think I have earned some leeway having recently lost my dad without many more miles on the clock than your's.
CGT is often less than IHT and 20 years of redemption is a long time.
This is entirely a function of personal circumstances but could be worth considering.
Sorry for bringing it up.

W.

[PinkDalek]

CGT is often less than IHT and 20 years of redemption is a long time. ...

Yes but the OP's Father appears to have absolutely no idea of the CGT base cost (s104 Pool).

Further, I don't think we've even established if IHT will be relevant to the Father's Estate.

[PinkDalek]

1980 : $4 - 2000 : $40 So there could be a very sizeable taxable gain sitting in there.

A couple of minor points to throw into the mix:

31 March 1982 rebasing should apply to the holding as at that date, I think, albeit although the holding at that stage would have been relatively small in number, it is a starting point.

Exxon would appear to pay dividends https://www.nasdaq.com/market-activity/stocks/xom/dividend-history

I can't say I have any knowledge of Share Incentive Plans but if the holdings are now in the Father's beneficial ownership (maybe they always were), might there be some records of the holdings over the years, at least in his more recent UK Tax Return papers (if he needed to complete them)? Subject to his being non-resident possibly over a number of those years. At least that might give some data points to work backwards.

Do we even know how and where the shares are held - certificated, nominee or what? There must be some paperwork available. Perhaps even W-8BENs https://www.hl.co.uk/help/dealing/overseas-share-dealing/overseas-share-dealing/what-is-a-w-8ben, dividend vouchers etc.

The first port of call though would be, as you say, the XOM share registrar.

[25slim76]

A bit brutal this, but I think I have earned some leeway having recently lost my dad without many more miles on the clock than your's.
CGT is often less than IHT and 20 years of redemption is a long time.
This is entirely a function of personal circumstances but could be worth considering.
Sorry for bringing it up.

W.

A very valid comment and one that's appreciated all the same. IHT would definitely apply eventually although with my mother fit and well in her mid sixties I would like to think not for a while yet...

I'm currently in the process of trying to get access to the platform used to manage the shares so I can find out some of the finer details regarding how many he actually has. I managed to stop him reinvesting dividends a few years back as I became to realise he may never actually get to spend the money he'd spent so long accumulating.
With regards to what to reinvest the money he takes out of XOM in, I'm at a bit of a loss as managing my own finances is one thing but those of a 73yr old are another altogether! Something that pays an income perhaps? Tolerance to risk for him age aside is definitely on the low side but anything that performs better than the 1.4% currently on offer within a cash ISA would be great The money isn't necessarily needed per say as he has sufficient funds within other accounts to cover holidays and day to day expenses etc.

[tjh290633]

Does he actually need to spend all the dividends? If he doesn't, then there is no reason why he should not reinvest them, but there is every reason why he should use that reinvestment to improve the diversity of his portfolio.

To my mind, the essential tactic is to ensure that he has no more than 10% of his portfolio in any one security. The ability to achieve this objective is constrained by CGT and the amount which can be put into the tax shelter of ISAs each year.

TJH

[Wuffle]

Hello again,
can there be some asset gifting between married couples and use of 2 cgt allowances and ISA allowances? Needless, I haven't checked into this.
Are you really investing for mum, who is younger and statistically likely to live longer?
Recent research indicates to me that there is a 1 in 5 chance of my mum making 92.

W.

[25slim76]

Does he actually need to spend all the dividends? If he doesn't, then there is no reason why he should not reinvest them, but there is every reason why he should use that reinvestment to improve the diversity of his portfolio.

To my mind, the essential tactic is to ensure that he has no more than 10% of his portfolio in any one security. The ability to achieve this objective is constrained by CGT and the amount which can be put into the tax shelter of ISAs each year.

TJH

No, the dividends don't necessarily need to be spent so I would be looking to reinvest most likely in a tracker of some sort. I also share the view of diversification which is why it concerns me that he's got himself into this position. The funny thing is he doesn't seem that concerned!

Hello again,
can there be some asset gifting between married couples and use of 2 cgt allowances and ISA allowances? Needless, I haven't checked into this.
Are you really investing for mum, who is younger and statistically likely to live longer?
Recent research indicates to me that there is a 1 in 5 chance of my mum making 92.

W.

I would be interested to find out the answer to that as that would certainly speed up the process. I'm not so sure it's necessarily investing for my mum but more getting my dad out of this position he's found himself in.

[PinkDalek]

Hello again,
can there be some asset gifting between married couples and use of 2 cgt allowances and ISA allowances? Needless, I haven't checked into this. ...

I would be interested to find out the answer to that as that would certainly speed up the process. ...

Those are good points by Wuffle but, at the moment, you don't really have the background CGT costs to go down that route.

Might be best to discuss this particular area at Taxes but see https://www.gov.uk/capital-gains-tax/gifts.

In particular note (my underlining):

If they later sell the asset

Your spouse or civil partner may have to pay tax on any gain if they later dispose of the asset.

Their gain will be calculated on the difference in value between when you first owned the asset and when they disposed of it.

If this was before April 1982, your spouse or civil partner should work out their gain using the market value on 31 March 1982 instead.

They should keep a record of what you paid for the asset.

Unless one were to assume (for the moment) that the holdings had a nil CGT base cost, gift say £12,000 worth annually or a larger amount and then the Mother sells the £12,000 each tax year, assuming she doesn't have other chargeable gains. You'd still be stuck as to what your Father's remaining CGT base cost would be at each stage in the process. The mechanics of such transfers are not known to me given ExxonMobil are a USA corporation.

Have you made any attempt to contact the Exxon share registrar as suggested earlier in the Topic?

PD

[Charlottesquare]

Frankly if my holding I would ignore the CGT bill when deciding speed /timing of sale, I would look at percentage of assets held in one stock, determine relative to overall assets what is comfortable, and act far faster re disposals than the annual allowance permits if the percentage holding is significant- saving CGT is all well and good but gambling on a substantial single stock holding is imho worse than paying some CGT- nearly anyone from Edinburgh tends to know someone burned by their concentration of holding in their ex employer, Royal Bank or HBOS and to that one can add my brother in law and his holding in his former employer, Centrica.

Lack of spread of risk is imho far worse than paying some CGT.

[PitBullCH]

Slightly off-topic, but my Father also worked for Esso all his life, also had a lot of XOM shares via the employee share scheme - this scheme is currently administered via ComputerShare in the US - and having spent nearly two years trying to get his shares sold and the proceeds moved to his Estate account I can tell you they are a complete and utter shambles to deal with.

So one hint for the OP: make sure he/you have the online account set up, make sure you both can access it, and in the unfortunate case that he should die whilst still owning those shares (and assuming you are the Executor of his will and have Probate sorted out) make sure you go online and sell all his shares and transfer the proceeds BEFORE informing them of his death. It will save you a world of aggravation.