Q&A: Dominic Coyle

In last Monday's paper you provided advice on the options available to Aer Lingus shareholders in the face of the IAG bid and deadline. Could you address the capital gains tax context for me please where, in the absence of a share swap deal, an individual could involuntarily be faced with a CGT liability through the forced sale of their Aer Lingus shares? Such a scenario would seem an unjust imposition on an individual.

Mr NM, Dublin

In the absence of any share-based offer, you’re quite correct to say that any successful outcome of the IAG offer for Aer Lingus will involve the sale of your shares and crystallise any gain (or loss) for you on the investment.

If you held the share from the outset, ie, when the company floated in late 2006, you will need to hold more than 4,230 shares for capital gains to be an issue. The float price back in 2006 was €2.20 and the IAG offer is €2.50. That means your gain would be 30 cent a share.

As you have an annual exemption from capital gains tax on the first €1,270 of gains annually, you would need to hold 4,234 shares for your gain to break this exemption limit.

Of course, you may have other gains already this year which will limit your scope for cutting any tax bill.

And, as Aer Lingus shares have traded below their IPO price for much of the intervening period – as low as 47 cent at the end of July 2009 – many people who bought since the flotation could be facing a significant tax bill.

Mind you, if you jumped in in early 2007, when the price was close to its €3.28 high, it’s capital losses, not gains, that will be exercising your mind.

Is it unjust?

No, it’s simply the rules of the investment game. Everyone likes to think that they retain full control when they buy a company’s shares but that is often far from the case. Placings, buybacks and other corporate actions can all upset the best-laid plans.

More fundamentally, the movement of a share price can quickly unravel the most carefully considered of strategies and – for all the weight of books on investment – stock markets are often volatile and illogical, acting purely on fickle sentiment.

In the end, even if everything else goes to plan, it is always possible that a company will sell itself – or be taken over even against its will.

It’s a bit of a stretch to characterise it as an “unjust imposition on the individual”.

How do I sell ‘free’ Sun Life Financial shares?

I hold shares in Sun Life Financial of Canada which I received free when the company demutualised in 2000. I wish the sell these shares as they are in dollars and the rate is good.

Do I need a broker and, if so, which one? Will I have a capital gains tax bill and, if so, could you tell me how it would be calculated. The share certificate says the shares are non-assessable common shares and I have 560.

Mr AT, Meath

It’s probably best to start at the end, or close to it. Yes, you will have a capital gains tax bill. You received the shares for free so the purchase price is considered to be zero. That means that any money you make on them is considered to be profit.

You say you have 560 shares. They trade on both the Toronto and New York Stock Exchanges (and in the Manilla in the Philippines too). At the weekend, the shares were trading at 41.87 Canadian dollars in Toronto and $33.01 in New York. That is about a dollar off the recent highs but the broad trend has been upward over the past couple of years. In Irish money, those prices convert to €29.62 per share, or roughly €16,587 for your holding.

As you say the current strength of the dollar – or more pertinently, the weakness of the euro – means the euro value of your holding is stronger than it might otherwise have been.

Before calculating your tax, bear in mind that you can deduct the cost of selling the shares, essentially, in this case, the stockbroker charges.

That being said, if you sold them now, you would be entitled to the first €1,270 of that gain without any capital gains tax. You’d pay 33 per cent on the rest, so, around €5,000 in broad terms.

Now getting back to how you go about it. Some companies offer cheap share trading options for smaller shareholders but Sun Life Financial does not appear to be one of them , at least for shareholders in the UK (and yes, they do lump us into the UK along with the Channel Islands and the Isle of Man).

If you don’t have an account with a stockbroker you will need to approach one who can executive trades on the New York or Toronto exchanges. Charging structures vary. In general, online broking is much cheaper than working by phone even with the same brokers.

You can look to brokers outside Ireland – and yes, they are generally cheaper on commission charges – but you have to factor in foreign exchange rates and commissions, and also the amount of paperwork in setting up an international trading account.

As you have a paper share certificate, you will find your range of options limited and more expensive than for online trades. It sounds like this will be a one-off deal for you, which again will push up the rates – brokers are much more interested in people opening accounts but these can carry annual charges, inactivity charges etc. Ring around the brokers to find which one offers you the best terms for this deal.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.