As Fyffes cheques arrive, what’s the story on tax?
Q&A: Dominic Coyle answers your personal finance questions
How has your Fyffes investment grown? Photograph: Getty Images/iStockphoto
I had a holding of 2,100 Fyffes shares, purchased in November 2000. I paid 91 pence a share, or £1,911 plus stamp duty of £19.11 and commission of £28.67. So the total cost was €1,958.78.
I have received a cheque in the amount of €4,683 and I should appreciate if you could, if possible, calculate my tax liability minus the yearly allowance of €1,270. I am not sure how to calculate the index multiple.
Ms BA, email
The recent acquisition of Irish fruit importer and distributor Fyffes by Japanese group Sumitomo means that thousands of (relatively) small shareholders like yourself are now receiving cheques for the value of their holding in the company.
And, as you mention, that brings with it the thorny question of tax – capital gains tax. We have looked at how to work out the gain on shares in various former Fyffes entities before but, with the gains now a concrete reality and the cheques landing in post boxes and bank accounts, it makes sense to run through it again.
From your point of view, the big plus is that you clearly have kept good records. Thus, you have to hand not only the purchase cost and the 1 per cent stamp duty on share purchases but also the commission charged, which is a cost you will be able to set against any gain before assessing tax.
The issue of computing tax liability on our Fyffes investment is complicated somewhat by the fact that the company in which you invested back in 2000 has since been divided into three separate businesses. Where you once had just 2,100 shares in Fyffes, you now have that number of shares in a company called Total Produce and another called Balmoral International Land (formerly called Blackrock International Land) in addition to the Fyffes holding for which Sumitomo is now paying you.
To further complicate matters, back in 2000, we used the punt. Although the euro was introduced in 1999, it was only a virtual currency until January 2002.
As is usual in these cases, the Revenue has worked out its accepted “base cost” – or recalibrated purchase price for the shares in each of the companies that have emerged from your original investment. You can find the formal Revenue calculations here: http://iti.ms/2mpXvaV.
Essentially, you need to work things out in three stages. First, convert your punt-acquired shares into euro; second, determine the value of both parts of the company when the property business Blackrock was spun off from Fyffes in 2006; and finally, go through the same process for Fyffes and Total Produce when that last entity was spun off later that same year.
Converting from punts is easy. Divide your 91 pence per share purchase price by 0.787564 and you find the euro equivalent purchase price is €1.15.
Starting with Blackrock/Balmoral, Revenue ruled that the market value per share in each company after the split was €1.47 (Fyffes) and 43 cent (Blackrock).
To work out what that means for the base cost of your Fyffes shares, multiply your 91 pence (€1.15) purchase price by 1.47 and then divide the outcome by 1.47 + 0.43. You get 1.15 x 1.47 / (1.47 + 0.43) = 1.6905 / 1.9 = 0.89.
So the base cost of your Fyffes shares after the Blackrock deal was 89 cent, with the base cost of the Blackrock shares being 26 cent.
Moving on now to the Total Produce de-merger, Revenue determined that the market price of each part of the business after the deal was 96 cent for Fyffes and 79 cent for Total Produce.
Taking your post-Blackrock base cost for Fyffes (89 cent), you multiply by the Revenue market price and then divide by the sum of the market price of both parts, ie 0.89 x 0.96 / (0.96 +0.79) = 0.8544 / 1.75 = €0.488. Rounding that to the nearest cent, you get 49 cent as the final base cost for your Fyffes shares.
So, of your original €1.15 (91 pence) purchase price, the Fyffes shares Sumitomo has just acquired from you have a base cost of 49 cent, the Total Produce shares account for 40 cent and the Blackrock/Balmoral shares 26 cent.
You mention indexing and it is relevant here. Until 2003, when it was abolished, Revenue published an annual list of indexation multipliers to allow people to revalue the purchase cost of assets, including shares, to allow for inflation.
Of course, back in 2000, our tax year went from April to March so the relevant multiplier in your case depends on when you acquired the shares. As your shares were bought after April 6th that year, the multiplier was 1.1144 and your revised base cost is 54.6 cent. The list of multipliers for anyone else trying to work this out for themselves is available at revenue.ie/en/tax/cgt/leaflets/cgtmult.pdf.
So, going back to the Sumitomo deal, the Japanese paid €2.25 per share. However, two cent of this was a final dividend. So, for capital gains purposes, you received €2.23 a share.
With the revised base cost of your Fyffes shares, after indexation, being 54.6 cent per share, your 2,100 shares cost you €1,146.60.
On the basis of your €4,683 cheque (2,100 shares x €2.23), your capital gain is
From this you can deduct costs incurred in buying and selling the stock – in your case, the initial £28.67 (€36.40) commission, leaving you with a gain of €3,500, a nice round number.
Deducting the annual capital gains tax exemption of €1,270, you are left with a chargeable gain of €2,230. Your tax liability at the CGT rate of 33 per cent, rounded to the nearest euro as Revenue likes, is €736.
If you have outstanding losses on the sale of other shares or assets this year, or previously that have not yet been offset against a subsequent capital gain, you can use them now to reduce or eliminate any liability to CGT. Otherwise, you need to fill out a Form CG1 Capital Gains Tax Return and Self-Assessment (downloadable form the Revenue website) and return it with payment by December 15th, 2017.
Of course, you still hold 2,100 shares in the listed Total Produce group (at a significant profit) and another 2,100 shares in Balmoral International Land. These, however, are no longer listed and trade on a “grey market”, and are some way short of delivering any gain to you as of now.
People who want to go through the full intricacies of the maths, step by step, can take a look at a piece I did back in November 2014 on precisely that issue. It’s at http://iti.ms/2n65ehU.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to email@example.com. This column is a reader service and is not intended to replace professional advice.