Paddy Power Return of Capital

Hi, Paddy Power are giving 8 euros per share to shareholders and one can receive it as a return of capital or income. I presume, in most cases, return of capital is better from a tax view point. But what is the difference?
Many thanks

If you opt for capital then you pay CGT unless you have losses to utilise.

If it's income, depending on personal circumstances one might not owe any income tax on it...

Thanks Jon, if I pay income tax at the marginal rate, it is probably better to go for capital?

If you pay income tax at 51% then you should elect for the capital treatment. You qualify for the €1,270 allowance and are taxed at 33%.

Thanks Joe

Hi Joe

How can a company have the option of designating a dividend capital or income?

I got a dividend from Ryanair and I would have been delighted to pay CGT on it, instead of income tax and levies.

Brendan

Brendan Burgess said:

Hi Joe

How can a company have the option of designating a dividend capital or income?

I got a dividend from Ryanair and I would have been delighted to pay CGT on it, instead of income tax and levies.

Brendan

Click to expand...

Here's what the Annual Report says:
"The efficiency of the Group’s capital structure is kept under regular review by the Board. Relevant considerations include the Group’s strong cashflow generation, its development pipeline and general capital market conditions. The Board believes the Group can increase efficiency, whilst remaining prudent and not compromising its growth, by moving from its current position of net cash to a position of net debt of approximately one times EBITDA at this time. This would enable the return of approximately €8.00 per share or €392m in aggregate to shareholders. The Board intends to structure this return via a B share type scheme, whereby shareholders can elect to sell or receive a dividend on newly issued shares, followed by a share consolidation. Shareholders will be asked to approve the return of capital and related matters at the Company’s AGM in May and a circular will be distributed in April."

Thanks Jon

But I don't understand how it works.

I also find it curious that a company is borrowing money to pay a dividend which will be taxable.


Brendan

Brendan Burgess said:

Thanks Jon

But I don't understand how it works.

I also find it curious that a company is borrowing money to pay a dividend which will be taxable.


Brendan

Click to expand...

This article, albeit written from a UK perspective, explains the various permutations possible to returns of value and the rationale. Page 8 covers B share schemes...
[broken link removed]

I see now it's a return of capital and consolidation. So while I get 8 euros per share (account has been credited with 800 euro), instead of having 100 shares, I now have 90 shares after the consolidation. Initially, I paid 20 euros for the 100 shares. Does this consolidation reduce the capital gains tax and/or is the initial price I paid a factor - or is it a straight 800 euro gain I'm taxed on? (leaving aside yearly 1,270 allowance). Advice much appreciated.

What doesn't make sense to me is the consolidation part. Speaking in round numbers, they are basically giving shareholders (give or take) the going rate for shares in recent months and reducing their shareholding by 10%. If I want to reduce my shareholding by 10%, I can do that any day that I want and I don't want or need to have it done compulsorily. I appreciate that there are less shares in circulation now so the ones that are in circulation should be worth more but that share price appreciation hasn't happened in the weeks since this transaction has occurred.

Can anybody enlighten me?

Thanks,
INBSMember.