Performance Update for Colm Fagan's ARF

Colm Fagan said:
We eventually agreed a deal, but Marlborough Stirling insisted that the vast bulk of the purchase price must be in the form their shares. The proposed value for the shares was the most recent price agreed with a private equity firm (I think it was 3i). Richard thought the shares were grossly overpriced and tried to negotiate a higher cash element, without much success.

The deal went ahead. My recollection, which may be slightly out, is that I paid £1.30 a share for the Marlborough Shares I was obliged to acquire.
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I don't understand. They bought your business and paid for it in shares that you had to pay them for? Sounds like a really bad deal.
 
Hi @ClubMan. I could have expressed myself better. They agreed to pay X for the business, but they would only pay Y in cash, with the remainder (X-Y) in the form of Marlborough Stirling shares, valued at £1.30 a share (I think). As I wrote, we tried to get as much as possible in cash, but with limited success. Yes, it was a bad deal, which explains why I opted not to invest my pension savings in bonds :) :)
 
It was part of the negotiation process. I'm not an expert, but I understand that it's normal in takeovers for the purchase price to consist partly of cash and partly of shares in the acquiring company. There was also an earn-out element. There's a story there too!!
 
Last week, I sold my pension fund’s smallest holding, which accounted for under 3% of the fund. As a consequence, the number of holdings in the fund fell from 13 to 12.

I sold my entire holding in AerCap, the aviation leasing company, at $143.12 a share. I had bought the shares in November 2019 for $60.44 a share. The 136% profit (128% in Euros) after slightly less than seven years was equivalent to a compound return of 13.4% a year (in dollars).

That seems a very good return, but I was put through the wringer for it. The price fell by more than 60% in less than five months between the date I bought the shares in November 2019 and end March 2020. Thankfully, during those dark days I resisted the temptation to sell the lot in disgust at my own stupidity. My perseverance was eventually rewarded, but the escapade could have ended disastrously. I would hate to go through a similar experience with a bigger holding. In the risk/reward game, the reward in this case wasn’t worth the risk.

The 13.4% compound annual return was capital only. Allowing for dividends, the return was even higher. Aye, there’s the rub: dividends.

AerCap is a Dutch company, with its headquarters in Ireland. It is listed on the New York Stock Exchange, and it share price is quoted in dollars. When it started paying dividends in 2024, I discovered that withholding tax of 40% was being deducted: 15% Dutch, 25% Irish. Thus, despite my pension fund being tax-exempt, I was only getting 60% of the gross dividend.

“Rage over a lost penny” is an alternative title for one of Beethoven’s rondos for piano. It aptly describes why I decided to sell my AerCap shares. I was furious on learning that I would have to reclaim the withholding tax myself, that the fund's custodian wouldn’t reclaim it on my behalf. Also, I would have to go through a lot of hoops, and incur considerable expense, to get my hands on the money. Whatever about my skills as an investor, I’m a hopeless administrator. I decided that I couldn’t be bothered going to all the effort required to reclaim the tax, so I sold the shares.

I used the proceeds to add to one of my existing holdings. A future post will tell which of my holdings was the lucky recipient of the extra funds, and why.

PS: The AerCap share price at close of business on Friday last, 25 September, was 4% higher than what I sold at, so my impetuousness proved costly - in the short-term, at least!
 
Colm Fagan said:
AerCap is a Dutch company, with its headquarters in Ireland. It is listed on the New York Stock Exchange, and it share price is quoted in dollars. When it started paying dividends in 2024, I discovered that withholding tax of 40% was being deducted: 15% Dutch, 25% Irish. Thus, despite my pension fund being tax-exempt, I was only getting 60% of the gross dividend.
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Why aren't the dividends tax free if the shares are within a tax wrapper? Or is it because they are paid out and not reinvested or something?

I'm sure you would know if there was, but isn't there some way to get the Irish tax back, and the Dutch tax back, or at least get a credit against the Irish tax in respect of the Dutch tax?
 
Colm Fagan said:
I discovered that withholding tax of 40% was being deducted: 15% Dutch, 25% Irish. Thus, despite my pension fund being tax-exempt, I was only getting 60% of the gross dividend.
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If Dutch DWT is deducted, then the Irish 25% is likely encashment tax, rather than DWT. If so, then that seems like incredibly poor form from your platform provider (as they are the ones deducting this). Pension accounts are specifically exempt and it should not be deducted.
 
The Irish encashment tax is a credit on your tax return and is deducted from any income tax due. If the encashment tax is higher than the tax due, then you will get a refund from Revenue
 
Thanks for your suggestions.
Here's what my ARF provider wrote:
I have received confirmation in relation to the Aercap dividend. The issue is that the stock is held in a US depo (due to the fact that its US listed). Pershing have a single market facing account for non US assets in this location. Pershing cannot avail of DWT tax relief at source in that location. With regards to the shareholder notice Pershing could not reply as all holdings are pooled and the stock is held in a depo where DWT relief at source is not available. As previously mentioned there are tax reclaim specialists who’s services you could avail of, but it's my understanding that this process is both timely and costly, in many cases the cost does not justify the reclaim.


Pershing do not offer relief at source in markets other than the US. Using your Apple example is straightforward. US company, listed in the US, dividends received in an Irish pension will only incur 15% US withholding tax (W8 reduces this from 30% to 15%).

Aercap is not that straightforward, its a Dutch company with an Irish HQ and listed on the NYSE (trading in USD). Dividends are subject to Dutch withholding and because it trades on the NYSE it has to be held in Pershing's account for non US assets in this location, somewhere DWT tax relief at source is not available.

@jpd I wonder does your suggestion only apply if I held the shares directly rather than through my ARF? I suspect it does but I may be wrong.
Either way, I don't have the energy nor the inclination to pursue this further. It just doesn't interest me.
Someone on another forum has offered to work to get a refund provided I agree to share the spoils with them. I've agreed. We'll see how that works out.
 
Wanted to check what percentage was being deducted as withholding tax on dividends on my Aercap holding after seeing this @Colm Fagan , and yes it's 40%. My broker doesn't break down the 25% and 15%, just has one withholding tax amount in dollars. Quite messy. Will probably stop investing in Aercap given the way this is done, don't have much more than one share of Aercap at least, out of my 85/90 company stocks.
 
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