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UK v O'seas Dividend?Old Mutual Nedbank Unbundling

Is the 15.10.18 Unbundling of Nedbank shares from Old Mutual treated as a UK or Foreign Dividend

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Client received 3 Nedbank Group shares from his small holding in Old Mutual Limited, which I assume is possibly a South African quoted company.

The 26.9.18 Old Mutual circular explained that the new Nedbank shares SHOULD be treated as a dividend for UK tax purposes. It then says that the tax value of the dividend would be the market value of the Nedbank shares at the time of the Nedbank unbundling (but that discussions between OM/Nedbank and HMRC about this are ongoing).

So I assume that the deemed dividend value will go on the UK SATR foreign pages rather than being treated as a UK dividend.

Does anyone know the answer for sure.

And also, does anyone know the tax value for each Nedbank share at the time of the unbundling on which the dividend (and CGT base cost) is based. I reckon it must be around £12 to £13 per share.

Thanks for any input.

 

 

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By Accountant A
14th Jun 2019 17:23

4.4.2 Receipt of Unbundled Nedbank Shares and Cash Proceeds:
4.4.2.1 The receipt of Unbundled Nedbank Shares and any Cash Proceeds pursuant to
the Nedbank Unbundling will be a taxable event for Old Mutual Shareholders
who are resident in the United Kingdom for United Kingdom tax purposes. As
there is some technical uncertainty, Old Mutual has requested HMRC's views on
whether the Nedbank Unbundling will be treated as income or as a capital
distribution (part disposal) for United Kingdom tax purposes.
4.4.2.2 Based on an initial indication received by Old Mutual from HMRC, Old Mutual
Shareholders who are resident in the United Kingdom for United Kingdom tax
purposes should be subject to United Kingdom tax in respect of the Nedbank
Unbundling in the same way as a dividend, with the consequences described
below. This is subject to ongoing discussion with HMRC, and Old Mutual will
provide an update in the event of any material change. Old Mutual Shareholders
are recommended to consult with their own professional advisers to consider the
implications for them in light of their own circumstances.
4.4.2.3 Individual Old Mutual Shareholders
4.4.2.3.1 On the basis of the initial indication received from HMRC, a United
Kingdom resident individual Old Mutual Shareholder should not be
subject to income tax in respect of the Nedbank Unbundling if the total amount of dividend income received by the individual in the tax year does
not exceed a dividend allowance of £2,000, which will be taxed at a nil
rate (the "Dividend Allowance"). The amount of the dividend income
received by the individual in the tax year in which the Nedbank
Unbundling occurs should include an amount equal to the market value
(at the time of the Nedbank Unbundling) of the Unbundled Nedbank
Shares and any Cash Proceeds received by the individual on the
Nedbank Unbundling.
4.4.2.3.2 In determining the income tax rate or rates applicable to a United
Kingdom resident individual Old Mutual Shareholder’s taxable income,
dividend income is treated as the highest part of such individual Old
Mutual Shareholder’s income. Dividend income that falls within the
Dividend Allowance will count towards the basic or higher rate limits (as
applicable) which may affect the rate of tax due on any dividend income
in excess of the Dividend Allowance. To the extent that a United Kingdom
resident individual Old Mutual Shareholder’s dividend income (which
should include an amount equal to the market value (at the time of the
Nedbank Unbundling) of the Unbundled Nedbank Shares and any Cash
Proceeds received pursuant to the Nedbank Unbundling) for the tax year
exceeds the Dividend Allowance and, when treated as the top slice of
such individual shareholder’s income, falls above such individual
shareholder’s personal allowance but below the basic rate limit, such an
individual shareholder will be subject to tax on that dividend income at the
dividend basic rate of 7.5%. To the extent that such dividend income falls
above the basic rate limit but below the higher rate limit, such an
individual Old Mutual Shareholder will be subject to tax on that dividend
income at the dividend upper rate of 32.5%. To the extent that such
dividend income falls above the higher rate limit, such an individual
shareholder will be subject to tax on that dividend income at the dividend
additional rate of 38.1%.

Thanks (1)
By penelope pitstop
14th Jun 2019 18:15

Thanks for that information.
I still do not know, however, if the deemed dividend is actually UK source or foreign.
Not that it makes much difference to the tax bill, but I cannot remember in the past a company spin-off/demerger etc. where the deemed dividend was not UK source.

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Replying to penelope pitstop:
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By ms998
17th Jun 2019 09:49

Well its a dividend from a South African company so Foreign (from memory there is WHT there to too claim)

Thanks (1)
Replying to ms998:
By penelope pitstop
17th Jun 2019 11:32

Even if there is South African withholding tax on South African dividends in general, I do not think that SA WHT would be an issue in this case for the following reason:

South African withholding tax is a tax imposed by the South African tax authority.

However, the deemed market value dividend on the Nedbank unbundling would presumably be "deemed dividend income" by UK tax rules. That being the case, there is no way South African WHT would be deducted in South Africa on a deemed UK tax charge.

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By penelope pitstop
17th Jun 2019 14:42

PLEASE IGNORE ALL OF THE ABOVE!

The January 2019 Old Mutual Summary of the Tax Considerations clarifies the position for the UK (and other countries).

The Nedbank Unbundling is actually a CGT part disposal where you either use the CGT a/a+b part disposal formula or the £3,000 small capital distribution route.

The Summary confirms that each Nedbank share was worth £12.236 per share and each Old Mutual Limited share was worth £1.184 per share (based on the closing prices on 15 October 2018).

The Summary also gives you the Quilter demerger CGT base cost apportionment (as well as the Old Mutual Plc to Old Mutual Ltd and Nedbank Unbundling CGT apportionments).

All in all a very handy CGT document. Should be compulsory for all similar transactions.

(But note the difference in value of the Nedbank shares (£12.326 per share or £12.236 per share)). This will need correcting by Old Mutual at some point.

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