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The Vodafone deal – another reason to dislike nominee accounts

Vodafone shareholders will no doubt be aware that the deal recently announced regarding the company’s stake in Verizon Wireless will result in shareholders receiving not just cash, but also some Verizon shares. Verizon is of course a US listed company.

Now many retail shareholders may not wish to hold shares in a US listed company, so they might want to sell their Verizon shares. The company has said that they will provide a dealing facility to enable holders of less than 50,000 shares to realise the value “in a straightforward and cost-effective manner”. How that might operate with holdings in nominee accounts has yet to become apparent.

A bigger issue is that those who wish to wait before selling their Verizon shares might have a problem with dividend payments. A lot of institutional funds may need to sell their Verizon shares because such a holding might not be in compliance with their investment mandate or policy. So there may be a substantial “share overhang” for some days, weeks or even months after the deal is concluded. In such circumstances it can often to best for private shareholders to wait for a more opportune time to sell.

But there is a reason that might suggest you may wish to sell sooner rather than later if you hold your shares in an ISA nominee account.  For dividends on US shares, the US tax authorities apply a “withholding tax” of 30% on dividends. If you are a direct shareholder (i.e. name on the share register), as a foreign resident you can avoid that tax by filling out a W-8BEN form – your stockbroker can supply one. But if you are in a pooled nominee account as most ISAs are, then it seems unlikely that such a claim will be able to be submitted. So if you continue to hold Verizon shares you may lose a substantial proportion of the dividends paid.  SIPP accounts which are pension schemes are not subject to this problem though.

In summary, all this complexity and difficulty is introduced by the use of nominee accounts rather than having shareholders recorded as the beneficial owners on the register of the company in their own name. See my previous blog article for more on that subject!

Roger Lawson

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