[Oliver Bulmer]

I don’t know where to post this but one issue that I think Sharesoc should raise with companies on behalf of private shareholders is the increasing use of special dividends to distribute capital, resulting in unnecessary tax on private shareholders because it results in capital being taxed as income.

This can result in the private shareholder paying up to 60% tax on what is essentially a capital payment because it is paid out in a manner that results in it being taxed as income.

It also means that amounts are distributed by, for example ETFs, as dividend when they are in reality capital.

Recent examples include Tesco which paid shareholders over £5 billion as a special dividend when the amount represented the proceeds of selling their business in the far east. I was forced to sell my Tesco shares in order to avoid paying 60% tax on that ‘dividend’.

Prudential is now doing the same thing in respect of demerging Jackson Financial, though perhaps this is due to different treatment being required for the distribution of shares in a foreign company. The same thing happened when BHP demerged South 32.

Aviva is now planning to return at least £4 billion to shareholders from the proceeds of selling some of their overseas subsidiaries. At least the first £750 million is being returned via a share buyback, but I have seen reports in the press that they may do the rest by special dividend as it might be too large for buybacks.
There are perfectly viable mechanisms for returning capital to shareholders as capital, not income, and it reflects the utter disdain for private investors that companies (or their investment bankers) ignore private shareholders interests and just payt out in the easiest manner – a special dividend, rather than in a manner that reflects the nature of the payment.

The alternatives they should be using are:
a) Buybacks
b) Tender offer (as Whitbread used for the Costa proceeds)
c) b/c shares scheme, which is still perfectly viable as long as shareholders do not have a choice as to it being capital or income.

I hope you will take up this issue with Aviva now, as they have not yet determined the return mechanism for most of the cash return. I am sure lobbying from you would be listened to, whilst an individual shareholder will not carry weight. I have owned their shares for over 20 years and do not want to be forced to sell to avoid a 60% tax charge on what should be capital, not income. Amanda Blanc is to be commended for finally tackling the deep rooted structural problems that have held it back for so long. I hope she can now recognise that the capital proceeds of her efforts should be distributed to shareholders as capital.

(note the 60% effective tax rate arises when the personal allowance is clawed back on incomes over £100,000, but any higher rate tax payer is severely affected)

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