I, like others, got my Vodafone [return of value] payment as income, although I have plenty of "prior losses" which any capital payment could have been put against. I tried confirming treatment for inclusion in my tax return with tax advisers, but they were non-committal. My holding was made up of about 4,000 original Vodafone shares, with the remaining 2,500 coming from dividend reinvestment.
Obviously I will not come under Revenue exemption, due to the size of the holding. Am I correct in including on my tax return the amount payable of cash and the Verizon shares value in UK dividends for 2014?
Ms BK, email
First, as this query relates to your tax return for 2014 and we are now at November 3rd, I assume you are filing your return online through the Revenue Online Service (ROS). On that basis, you have until the 12th of this month to complete the process.
Of more concern is that your tax adviser was “non-committal” about how your return of value from Vodafone at the time of the sale of its US business to Verizon should be treated. The Revenue has taken the trouble of going through precisely how to address the tax issues, whether you have taken the payment as income or as capital. You can find its explanation at revenue.ie/en/tax/cgt/vodafone-shareholders.html.
As you state, you had the choice of taking the payment – cash and Verizon shares – as capital or as income at the time of the return of value in March 2014. In addition, your remaining Vodafone holding was reorganised for you on the basis of six new shares for every 11 original Vodafone shares held. You opted for income, or ended up with the return of value being treated as income by default because you expressed no preference.
On that basis, Revenue says that the cash received and the Verizon shares are both treated as a dividend and are taxed in the same way as any other dividend.
As Revenue states : “The amount of the dividend that each individual should declare for income tax purposes is the sum of the cash actually received and the market value of the Verizon Consideration Share Entitlement received” – ie, the value of the Verizon shares at the time you received them.
On the question of which section of the tax return Form 11 it should be recorded under, I am no accountant or tax adviser, but I would expect it would be under panel 301 for GB and Northern Ireland dividends within Section E relating to foreign income. Given the time of year, I expect I will be quickly corrected if I am not fully accurate in this.
MAXIMISING RETURNS ON AN INVESTMENT FOR A CHILD
Our second son has a Saving Certificate maturing in two weeks and I am trying to decide what’s best for its long-term growth. He is currently eight and hopefully won’t need it until he is 18.
All interest rates are very poor at the moment and as I discovered from past experience if we buy equities for him he cannot hold them in his own name, which complicates matters further down the line. Any suggestions?
Mr BM, Kerry
As you say, returns are poor at the moment, and not just on bank and An Post savings. Bond market returns are equally poor, or worse, unless you are looking at high-risk corporate junk bonds. Property fund investments also involve risk and will probably have to be made in your name.
On that basis, you may do just as well to reinvest in An Post savings, where you will get a 7 per cent return over the next five and a half years. That’s 1.24 per cent a year without worrying about Dirt. Possibly a more attractive alternative, given your 10-year window, is the National Solidarity Bond, which will pay 25 per cent over the 10-year period, or 2.25 per cent a year if left invested for the full period. Again that is free of Dirt and unlikely to be bettered without taking on a degree of risk.
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.
