Tips for Vodafone shareholders to avoid paying extra tax
IF you are one of the almost 400,000 Vodafone shareholders in Ireland, you should have received a large envelope from the phone company about its proposed deal with US rival Verizon.
While the letter may appear confusing, you could end up paying more tax than necessary if you ignore it.
The deal itself between Vodafone and Verizon is almost certain to go through so your vote makes as much difference as a vote in North Korea but you probably will want to reduce your tax bill.
To do this, the most important thing is that you return the form long before the February 20 deadline. The bottom line is that those paying tax at the higher rate need to fill in the form to save money.
The main thing to understand is that, assuming the deal goes through, you will end up getting cash, shares in Verizon and shares in a smaller Vodafone by early March.
Your priority is to minimise your tax bill. To do that, you have to look carefully at section 2, which is shown clearly in the graphic and marked 'C'.
If you pay tax at the lower rate, you can minimise your tax bill by picking income payment. If you pay tax at the higher rate, you are better off ticking the box marked capital payment.
Crucially, Vodafone should have your bank details on file, but if not, contact them. Only the sort code and the last four digits of the account number should be visible on the form for security reasons. If no account is shown, this is because your details are not on file. The telephone number for assistance is 016968421. If you don't provide bank details before February 20, you will receive a cheque.
In addition, if you are an individual shareholder with fewer than 50,000 Vodafone shares on February 20, you will, if you wish, be able to sell all, but not part, of your Verizon stock through a cost and commission free dealing facility. That form must be received by 5pm on April 4. Here's a guide to filling out the Form of Election.
A: This is the default section and if you do nothing and don't bother returning the form, this is how the shares will be returned to you. In the case of the above, the payments will be given in euro, it will be treated for tax purposes as income rather than being hit with capital gain tax, and your shares will be held in the Vodafone Share Account.
B: If you want to change the currency in which your receive the cash part of your shares, place an X in the relevant box. All payments in US dollars will be made by cheque.
C: This section is important because of how you will be affected in terms of tax. You will receive the Income Option unless you place an X in the box. If you allow the Return of Value to be made via the Income Option, it will receive income tax treatment. The capital payment will receive Capital Gains Tax treatment.
Anyone with a high income and subject to the higher marginal tax rate may want to consider the capital option as it would be taxed at 33pc, with an annual exemption of €1,270. Paying income tax could reduce the overall size of the windfall if you have a high income.
D: The ordinary shares will be held in the Vodafone Share Account unless you opt for a paper certificate by placing an X in the box. Paper certificates are riskier. They have to be sent by post, and if they're lost, you may have to pay a fee to have it replaced. Vodafone has warned this could affect your ability to share or transfer the shares.
E: You and any joint shareholders, whose names appear at the top of the form, must sign.
F: This is only applicable to companies and can be ignored unless you are a company.
G: This only needs to be filled out if you've changed your email address.