ICAP Announcement

[tjh290633]

So for the Fool who doesn't pay much attention to their manually created portfolio spreadsheet until times such as the new year - how does one handle this?

In my example, I had 1244 IAP shares before the split. Now I have 710, with 588 TCAP shares at a book cost of zero. I notice the same has taken place for some South32 shared that have arrived...

What I have always done is to treat the transactions as a sale of one and a purchase of the other, with a cash adjustment if appropriate. Usually it has been a spin-off, but the classic case was Six Continents, which devolved InterContinental Hotels (IHG) and Mitchells & Butlers (MAB) plus a cash payment. I treated them as two new holdings. I closed SXC and credited that holding with the return of capital, and the opening value of the two new shares.

Another was when Lattice merged with National Grid, and in my records I sold LAT, bought NG., and had a cash receipt for the fractional sale of NG. that resulted. The same holding effectively carried on.

Brokers seem to be incapable of working out where the cash comes from in such situations, which is why I do my own thing, and do not rely on their records for CGT type of calculations.

TJH

[Raptor]

So for the Fool who doesn't pay much attention to their manually created portfolio spreadsheet until times such as the new year - how does one handle this?

In my example, I had 1244 IAP shares before the split. Now I have 710, with 588 TCAP shares at a book cost of zero. I notice the same has taken place for some South32 shared that have arrived...

Who are you with? I ask as iWeb, took the book cost of the ICAP shares and even divided that between the new NXG (55%) and TCAP (44%). Mind you I also notice that 710 + 588 does not equal 1244 either. 1289 (+ or - 1) should be the total after conversion. iWeb did it in 2 parts as per the announcements, first all ICAP became NXG, then on 30th the split happened.

Raptor.

[genou]

So for the Fool who doesn't pay much attention to their manually created portfolio spreadsheet until times such as the new year - how does one handle this?

In my example, I had 1244 IAP shares before the split. Now I have 710, with 588 TCAP shares at a book cost of zero. I notice the same has taken place for some South32 shared that have arrived...

Who are you with? I ask as iWeb, took the book cost of the ICAP shares and even divided that between the new NXG (55%) and TCAP (44%). Mind you I also notice that 710 + 588 does not equal 1244 either. 1289 (+ or - 1) should be the total after conversion. iWeb did it in 2 parts as per the announcements, first all ICAP became NXG, then on 30th the split happened.

Raptor.

I hadn't actually checked the share numbers given - 1244 IAP should go to 710 NXG and 580 TCAP. Is 588 a typo ?

I don't know where iWeb got a 55/45 split of book cost - it doesn't reflect HMRC rules.

[Raptor]

Corporate note from iWeb

The Book Cost of your original Nex Group holding has been apportioned between the two companies according to their relative opening prices on the effective date of the Demerger, this being 30th December 2016

You have received:

0.571429 of a New Nex Group PLC Ordinary share.

And

0.466964 of a New TP ICAP share

for each Existing Nex Group PLC Ordinary share held.

Raptor.

[Lootman]

Corporate note from iWeb

The Book Cost of your original Nex Group holding has been apportioned between the two companies according to their relative opening prices on the effective date of the Demerger, this being 30th December 2016

My broker allocated the entire cost basis to the NEX shares whilst allocating a zero cost basis to the TLBR shares.

That seems rather obviously and annoyingly wrong of them.

[Gilgongo]

I'm with Selftrade - they allocated the entire book cost to the NEX shares and then allocated a zero cost to the TLBR shares. And yes, 588 was a typo for 580, sorry.

I notice they allow you to adjust the book costs manually - so maybe I should do that based on the share price at the split?

[Lootman]

I'm with Selftrade - they allocated the entire book cost to the NEX shares and then allocated a zero cost to the TLBR shares. And yes, 588 was a typo for 580, sorry.

I notice they allow you to adjust the book costs manually - so maybe I should do that based on the share price at the split?

That's a useful feature for when, say, you transfer a share position in.

But if you made the original purchase with this broker, and they handled the corporate action for you, then they should be able to make adjustments like this easily. And if they can't, then why maintain a cost basis number at all? By maintaining it they encourage you to rely upon it for capital gains tax purposes. If they can't do it right, better to not do it at all.

[Gengulphus]

I don't know where iWeb got a 55/45 split of book cost - it doesn't reflect HMRC rules.

As very general comments on this sort of thing:

* It is highly likely that your broker is not acting as your tax adviser / accountant - I emphasise "not" because it's not just a matter of there being nothing to say that they are acting as such, but also of there being regulations saying that they must not act as such in the absence of a separate, explicit agreement to do so. (And as far as I know, at least the mass-market brokers simply aren't in the tax advice / accountancy market as well - or if they are, they keep very quiet about it!)

* There is no reason to believe that the people employed by a broker are particularly knowledgeable or qualified about tax matters. Telling you the basic facts about what money you've received or paid, what type of payment it was and how many shares of each type you've gained or lost is part of their job and you ought to be able to rely on it (though note that it's been known for brokers to get that wrong - see viewtopic.php?f=49&t=267 for an example of a broker getting the type of a payment wrong). Anything beyond that - including how to split up an amount paid for a purchase between two holdings that both originated from it - is not part of their job.

* If one has non-tax-sheltered shareholdings of the same share in more than one place (i.e. broker accounts or certificated holdings), then one's tax position with regard to that share can only be determined by looking at the full picture. And while on dividend income, there is a 'whole is the sum of the parts' property that allows each broker to give you the figures for their part of that full picture, the same is not true of CGT. For instance, it is perfectly possible for the correct CGT base cost of the shares you hold with broker A to be altered as a result of a trade you do with broker B, that broker A doesn't know has happened at all!

As a consequence of all that, I would suggest never making CGT computations rely on broker-supplied summary figures for the base cost of a holding - always go back and check against the amounts in the original contract notes (*). That applies even if the broker calls it the "tax cost" or something similar!

I should add that that doesn't mean that I regard broker-supplied cost figures as useless. I use them quite a lot when dealing with my CGT - I just don't ultimately rely on them. For instance, if I need to realise a gain to fill out my CGT allowance, or a loss to offset a realised gain produced by a takeover, looking through broker portfolio listings with their gains and losses calculated from their cost figures is a good way to identify promising sale candidates - but I'll do the calculations properly from the contract note figures before finally settling on which sales I'm going to do!

(*) One might make an exception for holdings with a very simple 'purchases and dividends only' history - no sales, no corporate actions, no transfers between brokers, etc - it's really quite hard for a broker to produce anything other than the sum of the amounts paid for the purchases in those circumstances! But then again, checking against the original contract notes should be pretty easy in those circumstances - and IMHO it's a good habit to get into.

Gengulphus

[Lootman]

*It is highly likely that your broker is not acting as your tax adviser / accountant - I emphasise "not" because it's not just a matter of there being nothing to say that they are acting as such, but also of there being regulations saying that they must not act as such in the absence of a separate, explicit agreement to do so. (And as far as I know, at least the mass-market brokers simply aren't in the tax advice / accountancy market as well - or if they are, they keep very quiet about it!)

It's true that brokers aren't in the tax business and that they may lack the ability to correctly compute liabilities. But there are cases where they are required to provide accurate information. For instance, you no doubt receive an annual consolidated tax certificate from your broker which should be sufficiently accurate for you to directly use that to prepare your taxes. Or to put it another way, HMRC lays down rules for brokers and banks to accurately report income (interest and dividends, specifically) to a taxpayer for the specific purpose of tax preparation.

Now, it's possible that brokers may get those certificates wrong as well. But I suspect it's a low probability event and, for practical purposes, millions of taxpayers will just use those documents to drive their tax prep. Moreover, if HMRC investigate your income declarations, then production of that certificate should normally satisfy them. And if that certificate is wrong, you probably will not be blamed for that.

So I see the problem not so much as broker incompetence or a conflict of interest, but rather that HMRC doesn't impose the same requirements on brokers for cost basis and proceeds information as they do for interest and dividends.

And perhaps that should and will happen in the future. In the US, brokers are now required to produce accurate information to a client and to the IRS, and gains and losses for a tax year are reported along with interest and dividends. But until that happens in the UK, there is a need to be diligent, at least in those cases where there has been a corporate action - as you say, if it's a simple buy and sell, then the broker data should usually suffice.

In the case of ICAP, I will sell both of the resultant positions in April, at the same time, thereby minimising the discrepancy.

[Gengulphus]

*It is highly likely that your broker is not acting as your tax adviser / accountant - I emphasise "not" because it's not just a matter of there being nothing to say that they are acting as such, but also of there being regulations saying that they must not act as such in the absence of a separate, explicit agreement to do so. (And as far as I know, at least the mass-market brokers simply aren't in the tax advice / accountancy market as well - or if they are, they keep very quiet about it!)

It's true that brokers aren't in the tax business and that they may lack the ability to correctly compute liabilities. But there are cases where they are required to provide accurate information. ..

Correct - they are supposed to report basic tax information accurately, as I went on to say myself in the next bullet point after the one you quote.

But they are not supposed to provide tax advice for their clients, nor to do tax accountancy for them.

And perhaps that should and will happen in the future. In the US, brokers are now required to produce accurate information to a client and to the IRS, and gains and losses for a tax year are reported along with interest and dividends. But until that happens in the UK, there is a need to be diligent, at least in those cases where there has been a corporate action - as you say, if it's a simple buy and sell, then the broker data should usually suffice.

It's not really a question of whether UK brokers are required to produce accurate tax accounts for their clients' holdings, but of the UK tax system being such that they CANNOT ensure that they do so. For example, if I buy a holding of a share for £X with broker A, then later sell it for £Y and within 30 days, buy a same-sized holding of the same share for £Z with broker B, then:

* As far as broker A is concerned, it's a simple buy-and-then-sell transaction, realising a gain of £Y-£X, and that's basically the only thing they can report to the client.

* As far as broker B is concerned, it's a simple buy-and-not-yet-sold transaction, that hasn't yet realised any gain and has a base cost of £Z for the purpose of future sales, and again that's basically the only thing they can report to the client.

* But as far as HMRC is concerned, the broker A sale is matched to the broker B purchase for CGT purposes, and so what actually has to be reported to HMRC is a realised gain of £Y-£Z, and for future CGT purposes, the broker B holding has a base cost of £X - a figure that broker B knows nothing about, not even that it exists at all!

In short. the 'parts' of the tax accountancy known about by the individual brokers simply don't add up to the 'whole' required by HMRC.

It's perfectly possible to design a CGT system that does have the sort of 'whole is the sum of the parts' property required to allow brokers to report separately on the parts of a taxpayer's portfolio that they know about, and allows the taxpayer simply to report the sum of what their brokers report (*). The US has such a system (**) - but the UK currently does not.

The net result is that brokers currently cannot provide their clients with results of CGT calculations that they can rely on for their tax returns, only with the raw information they can use for their own calculations. Not "don't want to", not "are not forced to", but "cannot"...

And so as things stand, there's absolutely no point in going after brokers for not providing their clients with accurate CGT computations - they're doing all they can do reliably by supplying the raw information about buys, sells and corporate actions that go into the client's own computations. Nor if they do nevertheless try to supply such computations is there any point in telling people they can be relied on - they can't. Of course, it's possible that a broker will try to supply such information, and that a client will use what they supply - in which case my guess is that it will probably never be looked at by HMRC. But if the client gets unlucky, ...

Don't think that I approve of this aspect of the UK CGT system - I most certainly don't, and if I were in charge, it would be the first thing I would fix about the system! But until and unless the UK CGT system is changed to have the appropriate 'whole is sum of the parts' property, it is an aspect that both brokers and we ourselves have to deal with...

(*) And of their own corresponding calculations for their certificated holdings if they have any.

(**) To forestall a possible comment, I'm only saying the US CGT system allows taxpayers to do that, not that it requires them to do so. I'm aware that it also allows other treatments - or at least did allow them several years ago when I last looked at it.

Gengulphus

[Lootman]

In short. the 'parts' of the tax accountancy known about by the individual brokers simply don't add up to the 'whole' required by HMRC.

The net result is that brokers currently cannot provide their clients with results of CGT calculations that they can rely on for their tax returns, only with the raw information they can use for their own calculations. Not "don't want to", not "are not forced to", but "cannot"...

Agreed, and I wasn't suggesting that brokers could ever perform complete tax calculations and reporting for an individual. As you say, I may hold more than one taxable account, or have certified holdings, or have rolled forward losses, or may have transferred shares into that broker in specie and not provided cost basis information.

What a broker could do, and could be forced to do, is provide accurate cost basis and proceeds information that they have. And that would include handling something like this ICAP action by proportionally allocating the cost basis across the two new positions. And brokers could be forced to do that in the same way as they are forced now to report interest and dividends which, again, still may not provide the whole picture (*)

Moreover, when doing a transfer from one broker to another, brokers could be forced to transfer the cost basis information as well.

I've had the misfortune to receive 1099 forms from a US broker and, as far as I am able to tell, they are accurate and complete for cost basis and proceeds information, as much as they can be. It even "notices" if you sell and buy within 30 days and adjusts for you - something you certainly have to do manually here.

So I think UK brokers could and should do a better job of reporting data needed for capital gain and loss computations, even if they are not yet forced to, and even if they can never know the complete picture.

(*) If all your holdings are with one broker, and assuming that the data is complete and correct, you can actually download the relevant pages of a US tax return directly from the broker's software. There is basically a link to some tax software that does the tax processing. That's probably the case where a broker can get closest to doing your actual tax reporting for you, with the caveats we've both noted above.

[Gengulphus]

What a broker could do, and could be forced to do, is provide accurate cost basis and proceeds information that they have. ...

Depends just what you mean. If you mean "accurately provide such information as they have about the cost basis and proceeds", they already have to do that - it's part of what they provide in the contract notes. It requires some processing by the shareholder to turn it into proper CGT computations, but the information is there.

On the other hand, if you mean "provide such information as they have about the cost basis and proceeds, that they know to accurately reflect the client's CGT position", they never have any such information about the cost basis - not even in a situation as simple as a holding created by a single purchase and not affected by any other event within the period that it's been held, as demonstrated by broker B's position in my previous example.

What they could do, and be forced to do, is provide conditionally-accurate information - i.e. information they certify to be accurate provided various statements are true about the client's CGT position. E.g. as long as the holding with the broker has been acquired and disposed of entirely by purchases and sales with that broker (no transfers in or out, no dematerialisations of share certificates), they could supply something saying "provided you owned no other non-tax-sheltered holdings of share X at any time during period P, your cost basis and proceeds for this sale are £C and £P respectively, and hence your gain/(loss) is £(P-C)" (period P being something like the period starting 30 days before the first purchase of the holding and ending 30 days after the sale concerned). And that could be extended to some further situations at the cost of further provisos - e.g. simple cases of transfers in and dematerialisations could be handled with a suitable proviso about the broker having been given an accurate cost basis for the transferred-in/dematerialised shares. (Though depending on just how long the brokers are already required to keep records of holding histories - not something I know about - there might also have to be exclusions for holdings started before a certain date, because it would be unreasonable to require them to provide information that they've previously been allowed to discard.)

This would doubtless simplify things for a lot of shareholders - e.g. anyone whose non-tax-sheltered holdings have only ever been held with one broker, as long as the broker's currently-retained records cover their entire history. But there would be quite a lot of people who have held them with more than one broker - most such cases being people who have transferred from one broker to another, I suspect, rather than people like me who deliberately keep their non-tax-sheltered shares in multiple accounts to diversify broker risk, but both are affected. And anyone who at any point has held certificated shares is also likely not to benefit from the simplification...

All in all, would it be worth it? A good question - it would mean that taxpayers could rely on broker-supplied CGT computations, as long as they checked that they did satisfy a number of conditions, but it would tend mostly to help those whose CGT positions are pretty simple anyway, so I'm a bit doubtful that it would be all that much of a saving overall. And by having the broker explicitly supply 'CGT figures', it might well make the trap for the unwary who 'cannot be bothered to read the small print' somewhat worse than it already is...

So the key to making such a development really worthwhile remains IMHO reform of the CGT rules to give them a 'whole is the sum of the parts' property, so that (as is already true for dividends) a taxpayer can get figures from each of their brokers and for each of their certificated holdings, add them up and know that they've produced an accurate report of their situation. It would still need some further measures to make it really work, essentially "information that must accompany a share transfer" and "taxpayer is expected to provide the story up to date D" measures for parts of holding histories that brokers cannot (reasonably) be expected to know, but I believe the US example makes it clear that it is doable.

But really, this is all a diversion from what I said about broker-supplied information beyond the straightforward reporting of the actual details of buys, sells and corporate actions. That was basically advice that as things stand, it is a bad idea to rely on such broker-supplied information for CGT reporting, and I stick to that advice. It's possible that future developments will cause me to change it - that's true of any advice! - and it's been an interesting diversion speculating about what such future developments might be like, but that doesn't change the current situation.

Gengulphus

[ReformedCharacter]

Are ex-ICAP shareholders who now own TCAP shares entitled to the TCAP dividend payable on 13th Jan?

RC

[Gengulphus]

Are ex-ICAP shareholders who now own TCAP shares entitled to the TCAP dividend payable on 13th Jan?

No - that dividend had an 'on the register' or record date of Friday December 23rd, meaning that it went ex-dividend on the previous day, Thursday December 22nd. The ICAP deal didn't complete and give the ex-ICAP shareholders their TCAP shares until a week later.

That information is taken from http://www.investegate.co.uk/tullett-pr ... 00093879R/, which also explains that "the Board of directors of Tullett Prebon ... wishes to ensure that the dividends paid to shareholders recognise their period of ownership of the Company" and that this dividend forms part of the "dividends declared in respect of the year ending 31 December 2016". Since Tullett Prebon shareholders (or those they bought the shares from) have been owners of the company for that entire year, and ex-ICAP shareholders for almost none of it, it's clear that the ex-ICAP shareholders not receiving this dividend is entirely intended.

Having said that, as far as I am aware, ex-ICAP shareholders do remain entitled to the interim dividend ICAP declared on November 16th, which went ex-dividend on December 8th and is to be paid on January 25th, and TCAP shareholders whose holdings come from Tullett Prebon rather than ICAP don't get that. I.e. both companies have 'cleared the dividend decks' with a dividend that went ex-dividend shortly before the deal, and that gets paid after it. (And incidentally, I'm pretty sure that if I dug into the details of the deal, I would find they included agreements about what dividends each company could declare and pay before the deal. Such agreements are absolutely standard on deals involving delivering shares, because without them, the board's duty to deliver as much value as possible to its existing shareholders would oblige it to pay as much as it possibly could to them, benefiting them at the expense of the prospective shareholders of the to-be-delivered shares...)

Gengulphus

[ReformedCharacter]

Are ex-ICAP shareholders who now own TCAP shares entitled to the TCAP dividend payable on 13th Jan?

No - that dividend had an 'on the register' or record date of Friday December 23rd, meaning that it went ex-dividend on the previous day, Thursday December 22nd. The ICAP deal didn't complete and give the ex-ICAP shareholders their TCAP shares until a week later.

Gengulphus

Thanks Gengulphus - I've been trying to work out the effect of the NXG/TCAP deal on my dividend income for this year...

RC