Setting loss on Eircom shares against the summer house gain

We recently cashed out all our Vodafone shares in the move to Verizon . . .

Tue, Jul 15, 2014, 01:10

Sparked by your recent article, I have a very simple query that might need a very complex answer (and you may have dealt with it before), but have you calculated the actual loss that someone would make in the following situation?

I, and my wife each invested IR £4497.55 (1,465 shares) in Eircom in July 1999. This holding was brought up to1523 (each) with the addition of the loyalty shares.

After the changeover to Vodafone we were left with 721 Vodafone shares each, and we recently cashed out all our shares in the move to Verizon.

At all times we took the “do nothing option” and let be what will be. We specified Capital for the designation of payment from Verizon, to avoid income tax.

As it happens I sold a summer house this year and made a capital gain, so I am trying to calculate the exact loss on the disposal of my Eircom/Vodafone/ Verizon shares so that I can off-set it against the capital gain from the sale of the property.

I have read the Revenue Note Return of Value to Vodafone Group plc (“Vodafone”) Shareholders & related share consolidation by means of a scheme of arrangement under part 26 of the UK Companies Act 2006 but that doesn’t cover the situation from the beginning . . . ie from the original investment in the Eircom shares.

Mr RB, email I’m going to start with a word of caution. As you state, the question might be easy but the answer is definitely not straightforward because of all the various takeovers, consolidations, mergers, payments in stock etc – to say nothing of the loyalty shares. So, while I will certainly give you my best answer, it is between you, your financial adviser and the tax man to determine an accurate assessment for Revenue purposes.

You’ve clearly done some heavy reading already so I assume you understand that.

Essentially, there are four elements to your calculation – and, fortunately, Revenue has done all the heavy lifting in a series of reports on Eircom valuations down the years.

First, before we get to the Vodafone holdings and the more recent events, let’s go back to the original breakup of Eircom.

Revenue calculated that your original purchase price per Telecom Éireann share was €3.90. So for your 1,465 shares, in euro terms, the purchase price was €5,713.50.

When Tony O’Reilly’s Valentia took the landline business private, he paid €1.335 per share. Revenue valued that part of the business at €1.69, so there was an early loss of 35.5 cent per share.

But what about the free shares? Well, clearly there was no loss there and the €1.335 per share paid by Valentia would be considered a gain. In your case, each of you had 58 free “loyalty” shares for holding on to your stock for a full year after flotation. At 1.335 per share, your gain on 58 shares would have been €77.43 each.

While this would be well below the annual capital gains tax exemption limit of €1,270, that does not come into play as you need to offset gains against losses in any given year first – and indeed future gains against residual losses – before setting net gains against the annual exemption limit. We’ll return to that element of the transaction in a minute.

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