return of capital to shareholders: taxation

J

joe sod

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I recently received a "return of capital" basically cash returned to me from a share I own . How is this dealt by capital gains tax or income tax?, my impression is that it is dealt with under capital gains tax.

Here are the figures I purchase 2000 shares of A for 1.10 euros in december 2016,
on march 31 2018 the shares are trading at 1.30 euros
on April 1 2018 the company returns capital to shareholders of 0.35euros a share
and at the close of trade on april 1 2018 the shares of A are trading at 1.08 euros.

Therefore my thinking is that the return of capital constitutes 24.5% of the total capitalisation of the shareholding

0.35/(0.35 + 1.08) = 0.245

so 24.5% 1.10 euros (the cost of buying the shares) is 0.27 euros
therefore the capital gain of the return of capital is 0.35 - 0.27 = 0.07euros per share

is this a correct approach?
 
I can't follow your sums but first thing to consider: How has the company themselves dealt with it? Ryanair (I think) did a similar thing not so long ago and structured it so the recipients could choose to elect for income tax treatment as a special dividend or CGT treatment as a share repurchase. I don't know if this is always the case. The default position I would expect would be CGT treatment and the effective purchase price of the share should be calculated by the company.
 
It is much simpler than that

The original cost of the shares was € 1.10
The company then repaid you € 0.35
Your cost of the shares is now € 1.10 - € 0.35 = € 0.75

Thereis no tax to be paid until you dispose of the shares. If you dispose of them today for € 2.00 then your capital gain is € 1.25 per share and you will be taxed on this
 
jpd said:
It is much simpler than that

The original cost of the shares was € 1.10
The company then repaid you € 0.35
Your cost of the shares is now € 1.10 - € 0.35 = € 0.75

Thereis no tax to be paid until you dispose of the shares. If you dispose of them today for € 2.00 then your capital gain is € 1.25 per share and you will be taxed on this
Click to expand...

That sounds good, but are you sure about this, it does make sense because the capital gains still have to be paid on the sale of the shares. Presumably if there was a return of capital along with a reduction in the share count for example if my shares were reduced from 2000 to 1500 shares then I would have to calculate the cost basis of those shares and pay capital gains tax if there was a capital gain on those shares on which the capital was retuned (in other words the 500 shares)
 
for example if my shares were reduced from 2000 to 1500 shares
Click to expand...

Not sure what you mean by this - are you saying that the company bought 500 shares back from you - then yes there would be a capital gain or loss but this is most unlikely

Or do you mean that the number of shares was reduced ie the opposite of a share split so that for every 4 shares you now had 3 - there is no disposal in this case so no gain or loss
 
jpd said:
Or do you mean that the number of shares was reduced ie the opposite of a share split so that for every 4 shares you now had 3 - there is no disposal in this case so no gain or loss
Click to expand...
yes im really talking about another example of a different share actually its donegal investment group that had a share redemption so for every 8 shares they extinguished 5 shares and returned the capital to the shareholders so presumably i must pay the capital gains on those shares for which the capital was returned . by the way thanks for taking the trouble to answer these questions
 
jpd said:
It is much simpler than that

The original cost of the shares was € 1.10
The company then repaid you € 0.35
Your cost of the shares is now € 1.10 - € 0.35 = € 0.75

Thereis no tax to be paid until you dispose of the shares. If you dispose of them today for € 2.00 then your capital gain is € 1.25 per share and you will be taxed on this
Click to expand...
This seems wholly incorrect. Do part disposal CGT rules not apply?
 
jpd said:
Yes, there is CGT involved. It wasn't clear in the OP post that this was a redemption - so effectively he disposed of 500 of his shares and CGT is due
Click to expand...

Well actually I was really discussing two cases of return of capital , the first one where there was no extinguishing of shares and I still held the same number of shares but had share capital returned as cash. I take it that you dealt with that one correctly and I dont need to do capital gains tax return unless i sell shares in the future.

In the second case namely donegal investment group there was a share redemption , my share count was reduced in half and I also got capital returned from those extinguished shares. So in this case I do a capital gains tax return . That is my understanding sorry if I confused things by talking about two different examples
 
another example is that a share I own was taken over by another company. I got new shares of the takeover company and also a small amout of cash £350. Do I just treat the cash like a special dividend and do capital gains tax return if I sell shares of the takeover company in the future
 
Excuse me for reviving an older thread. What happens if a company sells off part of its assets and returns cash to shareholders? Does the taxation depend on how its done? There has been talk (among the investors, not the company) of a "special dividend". Aren't dividends taxed as income? My worry is that I could end up paying tax on shares that are well under water and wouldn't incur CGT. It's a UK company, if that makes any difference, so I'm worried they could do something that makes sense for UK investors but not Irish ones.
 
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