Santander are giving distribution (dividend) in the form of shares (share options), how are these taxed

tax_moron

tax_moron

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I received share options (~€550) that will be converted to shares at a rate of 1 for every 23 shares owned at x date.

I do have the option to sell these on the market too before the date. Just wondering what are the tax implications of this type of distribution (I'm a normal PAYE worker).

If I sell the options before they are converted to shares, is this a CGT tax event, or an income based tax event with income tax, prsi, etc.?

Likewise if I hold the options and take the converted shares, is this a CGT or income tax event?

I'm presuming as its a distribution of sorts, it will fall under income tax?

Thanks!
 
Is this the corporate action you are referring to?


I am in the same boat as you and trying to figure it out.

Neither alternative should be subject to income tax (+USC & PRSI) as far as my reading of the situation goes.

If you do not sell the bonus share rights in the market, your Santander ords shareholding will increase when the rights lapse and for Irish tax purposes the newly-issued shares are deemed to have been acquired at the same date as the original holding. The original cost will be shared between the original shares and the bonus (newly-issued) shares. In your spreadsheet where you record your holdings, just increase your share position from 5,500 to 5,739 approx after the rights lapse. (I'm assuming you hold approx 5,500 shares (550/0.10) currently). Your stockbroker will automatically reflect this on your account. Also adjust your cost per share. Total consideration is unchanged.

If you sell the bonus share rights in the market, I think for tax purposes it is a deemed part-disposal of the shareholding in respect of which the rights were offered. So, this may or may not give rise to a chargeable gain in 2020. To calculate your chargeable gain you need to deduct the 'allowable cost' from the sales proceeds of your rights. Allowable cost = original cost of holding x [proceeds of rights sale / (proceeds of rights sale + market value of remaining shares)].

If the result of this formula is an amount less than your rights disposal proceeds, you have a chargeable gain, but you also have a €1,270 annual exemption as well to set against this. If the result is a larger figure than your rights disposal proceeds, then you have no chargeable gain.

Given the amounts involved, there is probably no tax for you to be concerned about for 2020 if you sell the rights.

That's my analysis of it and how I will approach the taxation of it - but willing to be corrected. I'm not tax-qualified, just a DIY investor with a copy of the ITI Capital Taxes manual to assist in computing taxes for corporate actions.

Also, I think that technically it is not a dividend/scrip dividend as they are precluded from this due to ECB recommendations.
 
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Thank you @AAAContributor, and yes you are right in your calculations. I've 5420 shares, and thus ~€550 market value of share options.

I do intend to just keep them and let them lapse into shares. So if I have this right, your saying (ignoring fees):

Original investment: 5420 shares @ €1.845 = €9999.90

New overwritten original investment: 9999.90 / (5420+235) = € 1.768 purchase price?

Is that right? or did I misunderstand something, sorry as my name suggests...
 
You’re confusing me with talk of share options; OP, do you work for Santander and is this share based remuneration?

Or are we talking about scrip dividends, i.e. shares given to shareholders in lieu of dividends.

The value of a scrip dividend is subject to income tax, USC, and PRSI just like a normal dividend.
 
Hey Gordon,

No I have no affiliation with Santander other than I own shares in them. I received share options as a form of dividend from what I understand' which can be sold before the expiry date if I wish. So I got 5420 share options which will be converted to shares at a ratio of for every 23 shares owned, 1 new one is given at a certain date.

My broker (Degiro) hasn't really provided me with any information about it, just saw the 5420 options in my portfolio and that they can be bought or sold. Had to google to find out what it even was.
 
tax_moron said:
Original investment: 5420 shares @ €1.845 = €9999.90

New overwritten original investment: 9999.90 / (5420+235) = € 1.768 purchase price?

Is that right?
Click to expand...

Yes. That's the approach I am taking.

Gordon Gekko said:
are we talking about scrip dividends, i.e. shares given to shareholders in lieu of dividends.

The value of a scrip dividend is subject to income tax, USC, and PRSI just like a normal dividend.
Click to expand...

Usually Santander shareholders would be given the option to take a dividend in the form of cash and/or shares and in that case yes, whatever form you elect for is subject to income tax+USC+PRSI.

This is different I believe. On Page 2 of the corporate action notice I linked to above it states:

"on 27 July 2020, the ECB issued a second recommendation to all European credit institutions under its supervision extending the effects of Recommendation I and asking them to refrain, until 1 January 2021, from paying out dividends from the results for financial years 2019 and 2020"

From Page 12:

"In this context, on 29 July 2020, the board of directors stated its intention to remunerate shareholders through the delivery of newly-issued shares, in an amount equivalent to 0.10 euro per share. The Capital Increase that is submitted to the shareholders at the ordinary general meeting covers the issue of shares required to pay this remuneration. Paying this remuneration through the Santander Dividendo Elección scrip dividend scheme has not been proposed because the provision on not paying out dividends contained in Recommendation II will also be deemed to apply to any type of payment in cash affecting the tier 1 ordinary capital and reducing equity in terms of either quantity or quality. Under the Santander Dividendo Elección scrip dividend scheme, the Bank’s assumption of a purchase commitment of the bonus share rights would entail a breach of Recommendation II, as long as it constitutes a payment in cash that reduces equity."

So, Santander has been building up reserves. It cannot pay out a regular dividend from reserves (due to ECB guidelines) and so the company has decided to 'capitalise' this amount it would have paid out by converting the reserves to share capital and issuing shares to shareholders in direct proportion to their existing shareholdings. These new shares are bonus shares. The bonus issue does not involve any payment to or by the shareholder.

According to the manual I am working off, TCA97 s584(3), shares issued by way of a bonus issue are deemed to have been acquired at the same date as the original holding of shares in respect of which the bonus shares have been allocated. The cost of the original holding is apportioned accordingly.

As such, this capital reorganisation comes under Capital Taxes and not Income Taxes.

But, again, I'm not qualified in tax and open to pushback on this.
 
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