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Return of Capital Vodafone Verizon

Vodafone realises US$130 billion for the disposal of its 45% interest in Verizon Wireless in September 2013. The Vodafone / Verizon Capital Reorganisation involves the return of cash plus the apportionment of cost with Vodafone shares quoted in Pounds and Verizon shares quoted in Dollars.

Some background reading that may be of interest:

The key points are that Vodafone will be returning capital to share holders via either Capital Gains or Income. The post focuses on the return of capital under UK HMRC Capital Gains Tax Rules where:

  • 6 'new' Vodafone shares in place of every existing 11 Vodafone share as at close of business on 21 February 2014
  • 0.0263001 Verizon shares for each Vodafone share as at close of business on 21 February 2014
  • $0.4928 per share held at close of business on 21 February 2014
  • Vodafone close price on 21 February 2014 was 236.50p
  • Verizon close price on 21 February 2014 was $47.27, which is £28.44 in GBP
  • GBP/USD exchange rate on 21 February 2014 was 1.66183

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 Vodafone Capital Reorganisation, if the cash issue settlement is greater than £3,000 and represents more than 5% of the market value of your Vodafone 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 Vodafone 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 Vodafone shares.

For this example, it will be assumed that 1,000 Vodafone shares where purchased on the 1st of January 2014 for 237p. The Vodafone share transactions have been entered into timetotrade as per the following screen shot:

Vodafone Verizon Sale 1.png

To enter the Share Reorganisation, click on the 'share reorganisation' button below the 'Open Positions'. Set the date to the 21st of February 2014, which is when the reorganisation occurred:

Vodafone Verizon Sale 2.png

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

Vodafone Verizon Sale 3.png

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

Vodafone Verizon Sale 4.PNG

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

  • Share Issue Ratio is 6 : 11
  • The share 'issue price' is the closing price of the Vodafone shares on the 21st of February 2014
  • The 'cash received' is the Pounds value of the US Dollar amount of cash received, which in this example is set to a £300

Vodafone Verizon Sale 5.png

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

  • 0.0263001 : 1 Verizon share issue ratio
  • Verizon close price on 21 February 2014 was $47.27, which is £28.44 in GBP at an exchange rate of 1.66183

Vodafone Verizon Sale 6.png

Click on the 'submit' button to process the Capital Reorganisation. Upon viewing the Portfolio, note how the overall cost of the position is reduced £300, as the cash received in this example is treated as 'Small Cash'. This will result in the overall profit being increased when the shares are disposed:

Vodafone Verizon Sale 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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