BHP London De-listing

[JillyB]

Morning All,

I have read that BHP is giving up its dual listing - withdrawing from the London Stock Exchange.

My gut instinct is to sell now, before the various funds do, to get a good price. Not at all sure what the HYP approach to this news should be, or what would happen if I did not sell - anyone know?

What's the view here?

Jilly

[Alaric]

I have read that BHP is giving up its dual listing - withdrawing from the London Stock Exchange.

That's by no means the whole story. According to their announcements what they are giving up is the concept of legally being both a UK Company and an Australian Company managed as one entity, but with separate Stock Market quotes.

Their proposed change is just to have an Australian Company but it will still also be listed in London.

From https://www.bhp.com/our-businesses/unif ... cture/#FAQ

BHP proposes to unify its corporate structure from two companies, with two share prices, into a single company incorporated in Australia.

BHP currently operates under a Dual Listed Company structure with two parent companies both with primary listings - BHP Group Limited in Australia and BHP Group Plc in the United Kingdom. With a joint Board and management team and equal shareholder voting rights, BHP is managed and operates as a single economic entity.

A unified BHP would have a primary listing on the Australian Securities Exchange (ASX), a standard listing on the London Stock Exchange (LSE), a secondary listing on the Johannesburg Stock Exchange (JSE), and a Level II American Depository Receipt (ADR) program on the New York Stock Exchange (NYSE).

[SalvorHardin]

Shareholders of the London-listed BHP shares should be aware that the Australian shares routinely trade at a fairly large premium to the UK shares.

Prices at close of trading last Friday:

Australia $44.46 so at $1.906 per £1 which works out to be 2,332.5p. In contrast the closing price in London was 2,183.5p

That’s a premium of about 6.8%. The premium for the Australian listed shares is mostly because Australian tax law treats dividends more favorably than UK tax law for some investors (I don't know any more than that).

So in theory the price of the London listed shares should rise to that of the Australian listed shares if/when they convert to Australian shares.

“Making 'Ltd' the sole BHP would “result in franked distributions being paid directly to all BHP shareholders”, the company said, allowing some investors to realise gains from dividend tax relief. Franking credits are in place to avoid double taxation of profits, given companies pay tax on profits before handing them to shareholders. “

https://www.investorschronicle.co.uk/news/2021/08/17/bhp-says-goodbye-to-ftse-100-with-record-dividend/

[idpickering]

I’m inclined to not try to be too clever for my own and my HYP’s healths, and am opting to do nothing with my BHP Group holdings but hold onto my shares. That’s my plan now, but I’m willing to adjust that in the future. We’ll see.

Ian.

[Steveam]

Although I’ve not given this much thought I might move my BHP from my ISA to a non-protected a/c and move something else into the ISA. I really haven’t looked at this in any detail yet.

Best wishes,

Steve

[triatharoo]

That’s a premium of about 6.8%. The premium for the Australian listed shares is mostly because Australian tax law treats dividends more favorably than UK tax law for some investors (I don't know any more than that).

So in theory the price of the London listed shares should rise to that of the Australian listed shares if/when they convert to Australian shares

What is the difference in numbers of shares on the 2 exchanges? If the number is significantly larger on LSE than ASX, isn't it as likely that the difference will close by the price reducing, since the franking credit is unlikely to be useable outside Australia?

Certainly not useable in the UK:

Dividends (Article 10)

Australian dividends are either ‘franked’, ‘partly franked’ or ‘unfranked’. The dividend voucher should identify the appropriate category.

(i) Franked Dividends. A voucher for a franked dividend paid by an Australian company shows a gross amount, an imputed tax credit (or rebate) and a net amount which is what the shareholder actually receives. The Australian tax credit reflects the underlying tax paid by the company on its profits (see INTM164010) and a portfolio shareholder (see INTM164010) is not entitled to credit for this tax. The correct measure of the dividend for UK tax purposes is the net amount of the dividend.

(I'm unable to post a link)

PT

[scrumpyjack]

That’s a premium of about 6.8%. The premium for the Australian listed shares is mostly because Australian tax law treats dividends more favorably than UK tax law for some investors (I don't know any more than that).

So in theory the price of the London listed shares should rise to that of the Australian listed shares if/when they convert to Australian shares

What is the difference in numbers of shares on the 2 exchanges? If the number is significantly larger on LSE than ASX, isn't it as likely that the difference will close by the price reducing, since the franking credit is unlikely to be useable outside Australia?

Certainly not useable in the UK:

Dividends (Article 10)

Australian dividends are either ‘franked’, ‘partly franked’ or ‘unfranked’. The dividend voucher should identify the appropriate category.

(i) Franked Dividends. A voucher for a franked dividend paid by an Australian company shows a gross amount, an imputed tax credit (or rebate) and a net amount which is what the shareholder actually receives. The Australian tax credit reflects the underlying tax paid by the company on its profits (see INTM164010) and a portfolio shareholder (see INTM164010) is not entitled to credit for this tax. The correct measure of the dividend for UK tax purposes is the net amount of the dividend.

(I'm unable to post a link)

PT

Thanks for that clarification, that HMRC do not let UK shareholders have any credit for the Australian 'franked' tax, even though it is much like the ACT system that used to apply in the UK. I had thought it was allowed

[JillyB]

Many thanks all for the comments, now I understand it will likely drop out of the FTSE 100 which is why the funds will have to sell, but will continue to be listed in London, so thank you. It is all a lot clearer.

I, too, have my shares in a S&S ISA, but do not understand the reason to move them if I am not going to sell them, unless it has to do with how we will receive the dividends in the future.

Looks like I will wait and see as well.

Jilly

[Arborbridge]

I, too, have my shares in a S&S ISA, but do not understand the reason to move them if I am not going to sell them, unless it has to do with how we will receive the dividends in the future.


Jilly

I didn't understand that either! I thought one would be better off with them in an ISA.

[Alaric]

I didn't understand that either! I thought one would be better off with them in an ISA.

If there are circumstances where Foreign Tax deducted can be offset against UK tax owing, a holding in a taxed account allows this whilst a holding in a SIPP or ISA may not.

The suggestion however was that this didn't apply to Australian tax. Perhaps worth checking though, that if dividends exceeded £ 2,000 would the notional Australian tax deduction make any difference to the UK tax owed?

[uspaul666]

When something similar happened to TUI the dividend was reduced because of a german tax that couldn’t be reclaimed in an ISA (and only possibly outside an ISA). I found this very irritating and decided the reduced yield was no longer good enough so I sold them and moved on.

[Arborbridge]

When something similar happened to TUI the dividend was reduced because of a german tax that couldn’t be reclaimed in an ISA (and only possibly outside an ISA). I found this very irritating and decided the reduced yield was no longer good enough so I sold them and moved on.

If it came to it, that's what I would do too. Plenty more fish in the sea and I can't be doing with complications any more.

[pyad]

When something similar happened to TUI the dividend was reduced because of a german tax that couldn’t be reclaimed in an ISA (and only possibly outside an ISA). I found this very irritating and decided the reduced yield was no longer good enough so I sold them and moved on.

The BHP dividend tax situation, should it go through, is not at all similar to that of TUI where German tax is deducted. The reason is that unlike Germany, no Australian tax is deducted from franked dividends. In Oz, the amount is not a deduction from the dividend paid by the company, it is a credit, a subtle difference that alters the outcome entirely.

The result under present legislation after the move is that UK shareholders will be taxed on the actual cash dividend received from BHP, the same as now, (and Woodside shares if that deal goes through) so that these payments will receive similar treatment to any UK dividend and the franked credit can really be ignored. It will be similar to any UK dividend for other purposes too such as holdings in tax shelters and qualifying towards the £2,000 tax free allowance for direct holdings.

So as things stand, there will be little or no change to future dividends received by UK investors from a relocated BHP. I see nothing to fear therefore on that ground and certainly no reason to move shares from ISA to direct, or vice versa, or to sell just because of tax or complexification panic.

[idpickering]

The BHP dividend tax situation, should it go through, is not at all similar to that of TUI where German tax is deducted. The reason is that unlike Germany, no Australian tax is deducted from franked dividends. In Oz, the amount is not a deduction from the dividend paid by the company, it is a credit, a subtle difference that alters the outcome entirely.

The result under present legislation after the move is that UK shareholders will be taxed on the actual cash dividend received from BHP, the same as now, (and Woodside shares if that deal goes through) so that these payments will receive similar treatment to any UK dividend and the franked credit can really be ignored. It will be similar to any UK dividend for other purposes too such as holdings in tax shelters and qualifying towards the £2,000 tax free allowance for direct holdings.

So as things stand, there will be little or no change to future dividends received by UK investors from a relocated BHP. I see nothing to fear therefore on that ground and certainly no reason to move shares from ISA to direct, or vice versa, or to sell just because of tax or complexification panic.

Thanks very much for your very worthwhile, and reassuring post Stephen.

I very much welcome your input.

Imho, my ‘do nothing’ stance is valid?

Ian.

[Gengulphus]

So as things stand, there will be little or no change to future dividends received by UK investors from a relocated BHP. I see nothing to fear therefore on that ground and certainly no reason to move shares from ISA to direct, or vice versa, or to sell just because of tax or complexification panic.

I know of few situations (if any) where panic is a good reason to sell - regardless of whether it's tax panic, complexification panic or any other form of panic!

There are however non-panic tax reasons why one might want to sell. If a HYP currently holds only UK shares and the HYPer is tax-resident only in the UK, its dividend income is subject only to the UK tax regime. If its BHP Group plc shares are converted to BHP Group Limited shares, which will be the outcome of this "unification" proposal if it goes through (which looks likely, but not certain), the HYP's dividend income will become subject to both the UK and the Australian tax regimes. I accept pyad's view that the combination of those two tax regimes is currently indistinguishable for such HYPers from the UK tax regime on its own (I cannot possibly know more about Australian tax than he does, and very likely significantly less!) - but it does mean that the HYPer can be affected by dividend taxation changes originating from both the UK and the Australian governments rather than only those originating from the UK government. So the HYPer becomes a bit more exposed to 'tax regime change' risk.

If that same HYPer has to submit tax returns, they currently just have to enter a total for their dividends and a total for their PIDs into each tax return. After the BHP unification, their BHP dividends will become foreign dividends and they'll have to enter them separately from the UK dividends and PIDs. If their total foreign dividends are £2,000 or less, that's just a matter of entering that total as a single extra figure in the main tax return; if they're more than £2,000, it's a matter of having to fill in the Foreign section of the tax return, which is a bit more complicated, at least from the point of view of understanding the questions it asks! And it asks for the dividend income to be broken down according to the foreign country concerned, which is no worse than just having to determine the total foreign dividend income as long as the HYPer only accepts BHP Group Limited and other Australian companies getting into their HYP, but can become worse if they make a habit of accepting foreign companies getting into it.

I'm not saying those complexifications are at all major, but they are complexifications, and a HYPer might have reasons to avoid even minor complexifications. For example, such a reason might be that they can see there's a fair chance that someone less experienced than themselves will have to take over the job of running the HYPer's finances, so that the HYPer wants to make that job as easy and unintimidating as possible for them, including by leaving them simple instructions about how to do it.

Gengulphus

[pyad]

You are correct of course in that foreign dividends on shares held direct require a different section of the tax return to be completed from UK dividends. So yes, I concede a minor complexification of form filling arising from BHP going full Oz but as returns are completed and filed online there is really not that much involved. And even that is obviated for ISA holdings.

What surely is far more important to UK BHP investors than a minor bit of further form filling though is how this will affect their dividend tax situation as, judging by the messages here, there was some confusion about it. What I wanted to clarify for readers is that this will not change their UK tax situation of those dividends under current rules. The effect will be the same as now so the payments will be treated for all practical purposes as if they are UK dividends in that the cash received is what matters and the Oz tax credit is irrelevant.

The query from some was whether anything may need to be done about this as regards their contining to hold BHP. In response I'm saying that nothing needs to be done for this reason alone, because nothing changes on dividend tax.

[idpickering]

You are correct of course in that foreign dividends on shares held direct require a different section of the tax return to be completed from UK dividends. So yes, I concede a minor complexification of form filling arising from BHP going full Oz but as returns are completed and filed online there is really not that much involved.

What surely is far more important to UK BHP investors than a minor bit of further form filling though is how this will affect their dividend tax situation as, judging by the messages here, there was some confusion about it. What I wanted to clarify for readers is that this will not change their UK tax situation of those dividends under current rules. The effect will be the same as now so the payments will be treated for all practical purposes as if they are UK dividends in that the cash received is what matters and the Oz tax credit is irrelevant.

The query from some was whether anything may need to be done about this as regards their contining to hold BHP. In response I'm saying that nothing needs to be done for this reason alone, because nothing changes on dividend tax.

That’s very reassuring, thanks for taking the time to post your message Stephen.

As “doing nothing” is my mantra regarding my HYP holdings nowadays, doing exactly that with my BHP Group holdings fits in nicely. I wouldn’t like to have to sell this mainstay of my HYP, despite me cutting back my holdings recently.

Ian.

[minerjoe]

You are correct of course in that foreign dividends on shares held direct require a different section of the tax return to be completed from UK dividends. So yes, I concede a minor complexification of form filling arising from BHP going full Oz but as returns are completed and filed online there is really not that much involved. And even that is obviated for ISA holdings.

My advice is, and has been, get everything in an ISA - then these issues cease to even be that. My shares are totally wrapped in an ISA so my form filling is zero...

[kempiejon]

Well as there a was a little dividend income in my ISA to mop up a glance at the highest yielding shares in the FTSE100 were all miners Evraz, BHP, Rio the the cutter Imperial Brands. Imperial ruled out, Evraz I don't know much about and their dividend history is sketchy. I hold both BHP and RIO and there's more in Rio so I added a little more BHP with today's cheap dealing day at Halifax.

[kempiejon]

Well as there a was a little dividend income in my ISA to mop up a glance at the highest yielding shares in the FTSE100 were all miners Evraz, BHP, Rio the the cutter Imperial Brands. Imperial ruled out, Evraz I don't know much about and their dividend history is sketchy. I hold both BHP and RIO and there's more in Rio so I added a little more BHP with today's cheap dealing day at Halifax.

And I see, after the fact, that I have bought just before the x date of the final and special dividend. So as per usual my purchase will likely fall into loss just after a buy them. Those pesky x vrs cum dividend dates...