Vodafone payout is no ‘windfall’, just a payment to ease the suffering

Q&A Dominic Coyle

Tue, Feb 4, 2014, 01:30

You keep using the word “windfall”. You might be good enough to clarify to readers how this is classed as a windfall.

I have about 460 of these Vodafone shares. I am going to get rid of the lot of them, pay the tax be left with a couple of hundred euros. What is the point in holding on to such a small shareholding that will probably never be worth anything ? Am I missing something here?

Mr JG, Limerick

Good point. I have been careful the first time I mention “windfall” in any piece to put it into quote marks, like you. The reason? In general, a “windfall” is a payment free of tax, generally unexpected or unplanned for.

Of course, the Vodafone payout is all of these things but, importantly, the reason you can receive the payment free of tax is that you are still at a loss on your Vodafone shares.

In fact, the Revenue in a recent briefing to the public worked out that even on the US business – the part that is being sold and which triggered their “return of value” to shareholders – those Irish shareholders who own Vodafone stock as a result of their original investment in Telecom Éireann in 1999 are still at a loss just on that segment of the business despite the payout.

And that assumes you sell the Verizon stock coming to you as part of the deal.

In your case, you stand to receive between 11 and 13 Verizon shares and your plan to sell them seems reasonable, especially as you will be paying no commission under the special dealing arrangement with Computershare.

If you do decide to sell your Vodafone shareholding in its entirety, you’ll have to do that yourself.

Computershare isn’t offering to sell your Vodafone shares under this no commission service, just the Verizon ones.

Assuming you do proceed – and that your Vodafone shares all date back to the Eircom flotation – you will not face any capital gains tax on the transaction.

That Revenue briefing noted that – allowing for the Eircom loyalty shares and for the 2006 cash distribution of 22 cent a shares when Vodafone carried out a seven- for-eight consolidation on its shares – the “base cost” (ie the cost above which you are making a nominal profit) for your Vodafone shares is €4.53.

That’s before the current deal but, assuming the payout is equal to €1.25 and taking the 223.8p trading price of Vodafone stock last Friday – c€2,73 in euro terms – taking the payment in full and selling the shares would give you just €3.98 per share before dealing costs.

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