Selling shares
If one sells part of a holding, how much of the original commission and stamp duty can be set against the capital gain? Is it proportional to the part of the stake being sold? I bought 1,000 British shares in November 1997. The stamp duty was £34.15 and the commission £112.68, a total of £146.83. I recently sold 300 of them. Am I correct in thinking I can offset 30 per cent of the £146.83 against the gain?
Mr B.B., Dublin
You are quite right in your guess that the expenses relating to share purchases are allowable proportionally when part of those same shareholdings is being sold. In the case you outline, you are selling 30 per cent of the stake and, therefore, you would be able to offset 30 per cent of the initial purchase expenses against any gain made on the transaction for capital gains purposes.
Of course, you would also be able to offset any expenses associated with selling the shares as well. In addition, depending on how long you have held the shares, you might be able to factor in an allowance for inflation over the period. You would have to have held the stake for at least 12 months before such an "indexation factor" kicked in. It is worth pointing out to those readers unfamiliar with transactions in British equities that such deals attract stamp duty in a way that does not apply in dealings of Irish stocks.
Telecom float
As the Telecom Eireann flotation is going to be oversubscribed, I'm thinking of buying shares through my father, who is not buying shares of his own, in addition to my own allocation. Once the shares are issued, how easy is it to get them transferred into my name and what costs, if any, are there in doing this?
Mr P.E., e-mail
The Telecom Eireann retail flotation - that portion of the company which will be up for grabs by the public rather than the institutions - will indeed be oversubscribed. However, the precise extent of this demand will not become clear until the flotation, as a sizeable percentage of those who registered for shares may not actually apply for them once the offer is made.
The plan you have in mind to maximise your own stake in the company is one that I am sure is being considered by many people. That might be one reason why so many parents have registered their very young children for shares. Of course, they might equally be taking a long-term view of investing for their children's future in a low-interest rate environment.
In any case, the scenario you outline poses two problems. The first relates specifically to your question. While transfers of shares between spouses are free of tax, other such transfers are not.
Essentially, the process you outline amounts to a transaction in the eyes of the Revenue Commissioners and, as such, will leave your father open to a capital gains tax liability, assuming the shares rise on flotation before they are transferred to you. He will be deemed to have disposed of the shares and you to have acquired them.
This is true whether or not any money changes hands. Even gifts are subject to capital gains tax. The one exception is if the shares were to transfer to you in the event of your father's death. In such a case, there is no capital gains charge on the transfer and the shares are deemed to have passed to you at the price they would command in the market on the date of transfer.
Another point worth remembering is that he will be liable to tax on any dividends that are paid by the group to shareholders following the flotation, until such time as you buy the shares from him.
The Revenue will assess the capital gain on the difference in the price upon flotation and on the date the share transfer form comes into effect. The one saving you will make will be in stockbroking commissions, but these are likely to be negligible in the early days of trading in Telecom as stockbrokers offer special deals to people selling the shares.
The other problem is that there is a fraud auditor appointed to the flotation process. The purpose of this position is precisely to ensure that people claim only what is their's by right and no more. You want to be sure that your father is willing to participate in the process you outline. The auditor could move to have both of you disqualified from acquiring shares in the flotation if he or she had reason to suspect that you were using him unfairly to benefit from the exercise.
What I'm saying is that any shares bought by your father are his and any agreement to the contrary could place both of you in a potentially difficult position.
Like many people, I have expressed an interest in purchasing Telecom Eireann shares. Given the demand for shares, the individual allocations are likely to be small. Going by the current share transaction costs and including capital gains tax, is it financially sound practice to buy such a small amount of shares?
Dr R.P., Dublin
While there is no certainty yet about the eventual size of individual allocations of Telecom Eireann shares - a lot will depend on the amounts subscribed for by people who have never previously invested in shares - you are right in saying it is likely to be on the low side.
However, that should not, in itself, dissuade people from bothering to apply for the shares. On the question of costs, it will certainly be a "financially sound practice" to buy such an amount of shares.
First of all, capital gains only kick in when a profit has been made on the shares. This profit must be above a certain level because each individual has an annual capital gains tax allowance of £1,000. Above this threshold, the rate of capital gains tax is 20 per cent.
In addition to an annual tax-free capital gain of £1,000, expenses involved in the transaction - both the purchase and the sale of shares - and an indexation factor for shares held for more than 12 months can be offset against any capital gain before assessing the tax liability. This means that the costs are taken out of any profits and so do not constitute a net loss to the individual, although obviously they lower the return on the investment.
Furthermore, it is certain that stockbrokers will be offering attractive low-cost services to small investors wishing to sell their Telecom stakes - at least in the early months following the flotation. That will reduce the costs involved.
Of course, unlikely though it seems in the current climate where stock markets are rising consistently and where this issue is in one of the most buoyant sectors - telecommunications - there is always a chance that a market crash will devalue your investment. In such an event, the costs involved in equity transactions will only increase the loss incurred as a result of the fall in the value of the shares. On the bright side, however, the smaller the amount allocated, the smaller the loss and the lower the costs.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, Fleet Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
