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Return of Capital Rolls Royce April 2015

Rolls Royce initiated a £1bn Return of Capital via a share buyback. This article discusses how to enter the new class of shares issued using timetotrade accounts and in turn calculate the apportioned cost of the new class of shares.

Some background reading that may be of interest:

This example will discuss the £250m return of captial in April 2015. The key dates and terms associated with the return of capital are:

  • Holders on the register as at 24th April 2015 will receive 141 'C' non-cumulative redeemable preference shares of £0.001 for each ordinary share held, equivalent in value to a payment of £0.141 per share.

The holders have three choices on what to do with the newly issued 'C' shares:

  • Option 1 – Shareholders can to elect to redeem the 'C' Shares at their nominal value of £0.001 per share. This is the default behaviour for most brokers. The redemption proceeds are expected to be paid by Rolls Royce on or around 3 July 2015.
  • Option 2 - Shareholders can elect to use the redemption proceeds to participate in a C Share Reinvestment Plan operated by the Registrar.
  • Option 3 - Shareholders can elect to retain the 'C' Shares.

For each of the options, follow the steps outlined below to calculate the apportioned cost of the 'C' Shares. Thereafter enter a sell transaction for the C Shares based on the price offered at date and time of sale. If the capital was reinvested, as per option 2, enter a buy transaction including the broker charges and stamp duty.

The return of capital under Capital Gains will be treated as a 'Capital Reorganisation' when using timetotrade. The following links provide some background reading on Capital Reorganisations, plus they provide an explanation of how 'Small' or 'Large' cash settlement amounts are treated:

If as part of the Rolls Royce Capital Reorganisation, if the cash issue settlement is greater than £3,000 and represents more than 5% of the market value of your Rolls Royce holding immediately before the Reorganisation, it is considered Large cash and cost will be allocated to the cash received to determine the profit on the cash received. If the amount of cash received is considered 'Small', the apportioned cost of the remaining Rolls Royce shares will be reduced by the value of the Small Cash, which in turn increases the profit, with the end result being that the Small Cash is taxed upon disposal of the Rolls Royce shares.

For this example, it will be assumed that 1,000 Rolls Royce shares where purchased on the 2nd of January 2014 for £12.70. The Rolls Royce share transactions have been entered into timetotrade as per the following screen shot:

Rolls Royce Return of Capital 1.png

To enter the Share Reorganisation, click on the 'share reorganisation' button below the 'Open Positions'. Set the date to the 24th April 2015, which is when the reorganisation occurred:

Rolls Royce Return of Capital 2.png

Click on the 'submit' button then select Rolls Royce from the list of open positions on that date:

Rolls Royce Return of Capital 3.png

Click on the 'submit' button, then select 'Capital Reorganisation' from the drop down menu:

Rolls Royce Return of Capital 4.png

Click on the 'submit' button then enter the Rolls Royce share reorganisation details where:

  • Share Issue Ratio is 1 : 1
  • The share 'issue price' is the closing price of the Rolls Royce shares on the 24th April 2015, which was £10.50
  • Enter the 'cash received' if there where fractional payments

Rolls Royce Return of Capital 5.png

Click on the 'add another' button to enter the C Share details where:

  • 141 : 1 Rolls Royce share issue ratio
  • The 'C' shares where valued at £0.001 on the 24th of April 2015

Rolls Royce Return of Capital 6.png

Click on the 'submit' button to process the Capital Reorganisation.

Rolls Royce Return of Capital 7.png

The correct costs will now be apportioned when using timetotrade to Generate UK HMRC SA108 or Investment Club Tax Return form 185.

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