Following my interview with Ian Guider this morning on Newstalk I have had several inquiries regarding the Vodafone shares and what people need to do, I felt it would be useful for people if I laid out what the options are and what needs to be done.

Basically what is happening is Vodafone are selling their 47% stake in Verizon, a US company. Verizon are paying partly in cash and partly in Verizon shares, this split is 1/3 cash 2/3 shares. How much Verizon will pay will be determined by the Verizon share price on February 19th but if we use the share price from December 6th last it will work out that you will get 1.25 times your number of shares in cash. So if you have 100 shares you will get €125.

The first decision you have to make must be made before this Sunday January 26th. You must decide whether or not you are happy to sell the Verizon business. This can be done online using the pin in that bulky pack you got in the post from Vodafone.

The next decision you need to make is whether or not you want to take the payment as 2/3rd shares in Verizon and 1/3 cash or whether you would prefer to take it all as cash by immediately selling your shares in Verizon.

Unless you have already got a US share portfolio or are doing an annual tax return it may not be worth the hassle to keep the shares because the complications of dividend withholding tax etc. may be too onerous.

The final and most important decision you need to make is how you want to take the payment. This decision must be made before the 20th of February. There are two options:

Income Payment

If you opt for an income payment it will be subject to income tax at your higher rate of tax and will also be subject to PRSI and USC.

Capital Payment

If you opt to receive the money as a capital payment it will be taxed under capital gains tax.  A capital gain is taxed at 33%.

This is where it gets interesting, according to revenues guide which was published yesterday if you own Vodafone shares now because you bought Eircom shares in 1999 the cost you paid in 1999 is deducted from the profit you make before calculating the tax.  When you work this out you will actually be suffering a loss on the shares and therefore there will be no tax to be paid.

Furthermore you can take this loss and carry it forward and write it off against any capital gain you have in the future.

For the vast majority of the 400000 Irish people who own Vodafone shares it is likely that agreeing to the sale of horizon, opting to take all the monies as cash and going the income route is the most appropriate route to go.

It is very important that you return the forms because if you don’t the income option will be the default and you could get hit with heavy taxes that could have been avoided. You should also not take this article as advice and I would strongly recommend that you get specific financial planning advice on this matter.

You can hear my interview with Ian Guider on Newstalk this morning here, just skip to 7mins 53 secs for the interview:

http://www.newstalk.ie/player/listen_back/5/7143/21st_January_2014_-_Breakfast_Part_1

I found this article very useful for working out what forms you complete in the pack and when:

http://www.irishtimes.com/business/personal-finance/vodafone-windfall-how-much-will-i-get-what-do-i-do-1.1653948

The revenue guide is also quite useful and has worked figures and can be accessed here.

http://www.revenue.ie/en/tax/cgt/vodafone-shareholders.html

 

As always I am available on eoin@festinosolutions.com or 045 854716