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WM2020 - BODMAS.
@WM -- https://www.cuemath.com/numbers/bodmas-rule/ :)
Thanks again MrM, I have a small loss too, but more importantly I can sleep soundly knowing that I can defend the numbers I put on my SA return ! Very educational thread, I now understand RoC events a lot better than I use to.
The formula is correct (and so is the bracketing - it's just a question of reading it in the normal way). If you get a negative answer then you've made a capital loss - which is my case!
It's going down on my tax form. With regards to tax I like to be very proper, taking a 'not a penny more, not a penny less' approach.
So it is written wrong, thanks for confirming BlueBiscuit, the positioning of them brackets makes all the difference....
I think you're reading it wrong, WM. You do the division first, like this : 1.0169n(1 – (u/(1.0169 + 0.76q))). For my little example below, the formula gives an answer of 85K which is right on the nose.
@MrMath, are you sure your formula is correct
1.0169n(1 – u/(1.0169 + 0.76q)),
where
n = number of shares owned before consolidation;
q = 3.9465, the share price at close on Monday 16th May (first day of trading after consolidation);
u = Your average cost per share (expressed in pounds) before consolidation
Will (1-u) always give a negative number, don't see how this can be correct, can you confirm, cheers.
Sorry, typo below. Imagine you had bought at 300p, not 350
At the risk of boring poor old popper4 ever further, here's a response to @longtime's earlier Q. Longtime, Imagine what would happen if you had bought a million quid back when the price was, say, 350p. By the time of the distribution, the price has risen to around 400p and you are sitting on unrealized gains of 333K. Agree so far ? What we're saying is that the cash distribution will trigger an immediate CGT bill of approx 25% of this amount, or 80K. The total amount of the distribution is NOT taxable. However, the gain (anything in excess of the original cost) will be taxable. Mr Math's formula gives the precise amount.
Popper4 - you're beginning to sound like Boris Johnson :D
Jeez you lot, this has now been done to death, it's over, it's done please move on
Put it this way if I had purchased a £1 million worth of aviva on the 16th, about £250,000 of which would be buying £250.000 cash on the balance sheet, my accountant would not be advising me that I had made a £250,000 capital gain come the 19th - that would be crazy to think a capital gain had been made.
What idiot thinks that a gain of £250,000 would have been made?
"I will check MrMath's formula for calculating CGT and will post here if it is not correct."
It works up to any fractional entitlement i.e. ignores any fractions of shares. I haven't looked into what happened to any fractional entitlement as this was not my case. Sometimes fractional shares are even given away to charity as in practice they will make very little difference to the sums!
"The redemption of the B Shares will be treated as a disposal of the B Shares for the purposes of CGT."
The above statement is from page 28 of the Return of capital Circular downloadable from here https://www.aviva.com/investors/circular/ . I will check MrMath's formular for calculating CGT and will post here if it is not correct.
"there is no capital gain from the returned capital - any potential gains can be worked out when selling shares on the re based cost"
There is. It probably won't be much or even anything for the majority. Here's a worked example:
https://www.gpe.co.uk/media/2793/return-of-capital-worked-tax-example.pdf
Also, some people may have a capital loss due to the recent consolidation and it's worth putting that on their tax form for future use.
Put it this way if I had purchased a £1 million worth of aviva on the 16th, about £250,000 of which would be buying £250.000 cash on the balance sheet, my accountant would not be advising me that I had made a £250,000 capital gain come the 19th - that would be crazy to think a capital gain had been made.
@longtime -- that's true if the total amount of capital returned is < £3000. It depends on the size of your holding. See https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg57835 ("you may also accept that TCGA92/S122 (2) can apply in cases where the distribution is £3,000 or less - whether or not this amounts to 5 per cent or less of the value of the shares in respect of which it is distributed. "). If the distribution is above this 5%/£3000 threshold, then the disposal is assumed to have happened on May 16th and MrM's calc is correct, afaik.
mr
''For shares held outside an ISA or SIPP
your capital gain from the returned capital due to the redemption of the B shares is''
there is no capital gain from the returned capital - any potential gains can be worked out when selling shares on the re based cost.
"what is the equation for the future disposal of the residual /reduced holding with regard to gain"
Your original acquisition costs are reduced by the amount returned to give the acquisition costs of your consolidated holding, which becomes the figure to use for future calculations.
It is worth noting that if your average cost per share before consolidation was more than 4.01624 then the redemption of the B shares would actually cause you a capital loss.
Thank you, as you are on the ball and I have to think hard about it could you please advise re any future CGT what is the equation for the future disposal of the residual /reduced holding with regard to gain ( or not!)
Thanks MrT, just saw your post but i'm very happy to get the additional clarification :)
Thanks, MrMath. I think I get it now. The redemption of the B shares is treated as an "disposal" in HMRC's eyes, hence triggering an immediate (potential) CGT gain
In the past, I have received smaller returns-of-capital but I have always dealt with them by reducing the acquisition cost when I finally got around to selling (following the law around "small" holdings in https://www.legislation.gov.uk/ukpga/1992/12/section/122/enacted section 2). But I understand now that, because this particular RoC does not fall under the "small" guidelines, I need to treat it as an immediate disposal.
Thank you for clarifying !!
BlueBiscuit, Yes, it's a CGT event if your shares are held outside an ISA. It's deemed to be a partial disposal of your original shareholding and, as such, c25.3% of your original acquistion cost (based on the closing share price on 16 May) would be attributed to the disposal of your B shares (the remaining c74.7% being attributed to your retained shares). Aviva should be confirming the exact percentage in due course. In their literature Aviva said they'd put a worked example on their website after the redemption of the B shares but I couldn't find one last week.
PS. The cost is only reduced by the cash payment if it's a "small" disposal but this transaction doesn't meet the necessary criteria.
For shares held outside an ISA or SIPP
your capital gain from the returned capital due to the redemption of the B shares is
1.0169n(1 – u/(1.0169 + 0.76q)),
where
n = number of shares owned before consolidation;
q = 3.9465, the share price at close on Monday 16th May (first day of trading after consolidation);
u = Your average cost per share (expressed in pounds) before consolidation
You have a CGT allowance of £12,300 for 2022 to 2023 and so if your total gains don't exceed this for the current financial year you'll have no capital gains tax to pay.
oh hang on. I think I might have misunderstood. The proceeds from "B" shares are treated as income only if a choice was offered to investors. In this case, there was no such choice hence I assume this will be a CGT event (right ?) -- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/385141/Special_purpose_share_schemes.pdf
If that's the case, I understand that my cost basis is just reduced by the size of the cash payment... ie I pay a larger lump of CGT when I come to sell.
Hope I haven't confused myself. Does this match everyone's understanding ? thanks.