Q&A Dominic Coyle

Selling costs and tax on inherited Guinness shares


I inherited 4,270 Guinness shares in 1998 valued at £7.83 sterling a share at that time. I am considering selling these shares now and would like to know what it would cost me to sell them and what tax I would be liable for the sale of them.

Ms C.K., email

Guinness is now called Diageo and, on the basis of the price you have quoted, they have done well in the period since you inherited the shares, despite a couple of stock market slumps and the recent recession.

To work out the tax liability of the transaction, you have to subtract the “acquisition” price of the shares from the sale price. In your case, the acquisition price is the £7.83 market value at the time you inherited the stock.

The sale price, assuming you were to trade yesterday morning, would be £19.35½ a share. That amounts to a gain of 1,152.5 pence sterling a share – or £49,211.75 in total. However, there are perfectly legitimate ways of reducing this somewhat.

Although the use of indexation factors to allow for the impact of inflation on the origi-nal purchase price of assets has been discontinued since the end of 2002 by then finance minister Charlie McCreevy, it can still be applied to people who still hold assets acquired before that date.

In your case, the issue is when in 1998 you inherited the shares as, back then, the Irish tax year ran from April 1st to March 31st of the following year.

If you inherited the shares before the end of March 1998, the indexation factor is 1.232. You multiply the value at that time – 783 pence sterling – by 1.232, giving a new “acquisition” price of 964.66 pence sterling. If the shares were inherited on or after April 1st, the multiplier is 1.212 and the new “acquisition” price of the shares is 949 per cent sterling.

Bear in mind that for shares, the inheritance date is the date of death rather than the actual date you physically inherited the shares after probate.

You are also entitled to offset any gain against losses, if any, previously built up on similar transactions.

That apart, you are entitled to offset against any gain, costs validly incurred in the acquisition or disposal of the stock. In your case, there would be no acquisition costs but you would be entitled to offset any selling costs against the ultimate capital gain before assessing capital gains.

So what about those sale costs?

Diageo offers its shareholders a low-cost sale option through StockTrade at a cost of 0.5 per cent of the value of the transaction, with a minimum price of £15.

It should be noted that the StockTrade option is directed at small shareholders and you may well not qualify, given the scale of your holding. You would need to check this with Diageo’s registrar, Capita, or at the registrar’s office at The Irish Branch Registrar, Diageo plc, St James’s Gate, Dublin 8 (Tel. 01 -643 5438) or at irish. registrar@diageo.com or StockTrade (stocktrade.co. uk) or at 0044-131 2400577.

Also, as I understand it, the StockTrade option limits your options somewhat. I gather StockTrade contacts shareholders to tell them on what date it will sell the shares and it sells the full aggregate amount offered by all participating shareholders in one go. That might not suit you.

Capita also offers a small shareholder service (capitadeal.com) but it quotes on transactions only up to £25,000 (for which it charges 1 per cent online and 1.5 per cent for phone services). For higher amounts, like yours, they quote individually.

That option aside, the cost will depend on the stockbroker you use. It is a competitive market and you would be advised to shop around on cost.

Davy, for instance, according to its website, has a minimum charge of €100 a transaction on its execution-only service – where you do not want to pay for an ongoing relationship with the broker but just need to use them to sell particular shares without any advice – with 1.65 per cent on the first €15,000 of the transaction, 1 per cent on the next €15,000 and 0.5 per cent on the balance. Online transactions are less expensive.

The other thing to note, particularly with shares like Diageo, is that there is very little liquidity in that stock in Ireland. It is likely the shares will be sold through London and there is no reason why you should not use a British shareholder – which might well be a cheaper option.

The cost will also depend on whether you hold the shares in electronic form – in a Crest or Nominee account, for instance, or in paper certificate form.

Finally, you are entitled to realise a gain of €1,270 in any calendar year without having to consider capital gains tax. In your case, the first €1,270 of any gain will be exempt from CGT.

Bear in mind that there is no obligation on you to sell the entire shareholding in one go.

You could sell a portion of the holding now and sell the balance in small tranches over coming years to maximise the benefit of the annual exemption threshold of €1,270, or await a better CGT tax regime. However, it should be noted that there are strong indications that the rate of CGT could rise next Tuesday in the budget – it has been suggested the rate could become 35 per cent compared to the current 33 per cent – making any sale even more expensive taxwise.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com