Northern Rock plc – tax position of former shareholders
Questions and answers
Introduction
The shares in Northern Rock plc were taken into public ownership on 22 February 2008. HMRC have issued a Revenue and Customs Brief 'Capital Gains Tax and Income Tax: former shareholders in Northern Rock plc and members of employee share schemes'. The Brief sets out the capital gains tax (CGT) and income tax implications for former shareholders and employees who were members of employee share schemes.
The questions and answers below cover the main issues.
Contents
- My shares were taken into public ownership in February 2008. Have I disposed of them for CGT purposes?
- I received 'free shares' in 1997 when the old Northern Rock Building Society converted into a company. What’s the cost of my shares?
- How do I claim a loss on my shares?
- What’s the position with any compensation that I receive under the compensation scheme?
- My shares were held in a SIP (employee Share Incentive Plan) when they were taken into public ownership. Does this make a difference?
- I was in a SAYE share option scheme (also known as Sharesave) in February 2008. How am I affected?
- What about shares which I got from my previous SAYE (or Sharesave) contract?
- I was in a Company Share Option Plan in February 2008. How am I affected?
- I held shares in an unapproved share scheme which were taken in public ownership. Does any income tax liability arise?
Q. My shares were taken into public ownership in February 2008. Have I disposed of them for CGT purposes?
A. Yes, you are treated as disposing of them on 22 February 2008. You received nothing for the shares and so you may have realised a loss.
Example
You bought shares in Northern Rock plc in 2001 at a total cost of £2,000. For CGT purposes the disposal proceeds are nil and you have a loss of £2,000 (proceeds nil less cost £2,000).
(Note: CGT indexation allowance cannot be used to create or increase a loss and so is not included in the calculation.)
Q. I received 'free shares' in 1997 when the old Northern Rock Building Society converted into a company. What’s the cost of my shares?
A. Free shares received when the Building Society was converted to a company have a nil cost for CGT purposes. So no loss or gain arises on any free shares you had which were taken in public ownership, as there were nil disposal proceeds and nil cost.
Q. How do I claim a loss on my shares?
A. If you have to complete a tax return for the year 2007-08 (the tax year in which you disposed of the shares) you can enter the loss on the Capital Gains pages of the return, along with all other capital gains and losses of the year. If you don’t have to complete a tax return you can write to your tax office (before 31 January 2014) with the details in order to claim the loss.
Allowable losses for the year (2007-08) are set off against chargeable gains of the same tax year. Any unused losses are carried forward and set off against chargeable gains of later tax years.
Q. What’s the position with any compensation that I receive under the compensation scheme?
A. Any such compensation is liable to CGT as a 'capital sum' derived from your ownership of the shares which were taken into public ownership. The full cost of the shares will have been taken into account in arriving at the loss you made when you were treated as disposing of the shares in February 2008.
Please see:
- My shares were taken into public ownership in February 2008. Have I disposed of them for CGT purposes?
- I received 'free shares' in 1997 when the old Northern Rock Building Society converted into a company. What’s the cost of my shares?
So the chargeable gain you make on any compensation will be equal to the full amount of the compensation.
The chargeable gain is liable to CGT in the tax year in which the compensation is received, after deducting any allowable losses (including any unused loss on the disposal of your Northern Rock shares – see How do I claim a loss on my shares?) and the annual exempt amount for that tax year. For 2008-09 the exempt amount is £9,600.
Q. My shares were held in a SIP (employee Share Incentive Plan) when they were taken into public ownership. Does this make a difference?
A. No, in the unusual circumstances applying to Northern Rock, the consequences are just the same as for any other shares, as set out above.
Q. I was in a SAYE share option scheme (also known as Sharesave) in February 2008. How am I affected?
A. You will not be able to exercise options and obtain shares when your three or five year savings contract ends. You may be able to keep paying into the savings plan, and receive a tax free bonus when it ends.
Any compensation you receive from the Government will be taxable as income of the tax year in which you receive it.
Q. What about shares which I got from my previous SAYE (or Sharesave) contract?
A. If you were holding shares on 22 February 2008 which you had acquired when you exercised options from an earlier SAYE scheme, then you will be in the same position as any other shareholder, and the tax treatment set out in the questions:
- My shares were taken into public ownership in February 2008. Have I disposed of them for CGT purposes?
- I received 'free shares' in 1997 when the old Northern Rock Building Society converted into a company, What’s the cost of my shares?
- How do I claim a loss on my shares?
- What’s the position with any compensation that I receive under the compensation scheme?
will apply.
Q. I was in a Company Share Option Plan in February 2008. How am I affected?
A. You will not be able to exercise options and obtain shares. Any compensation you receive from the Government will be taxable as income of the year in which you receive it.
Q. I held shares in an unapproved share scheme which were taken in public ownership. Does any income tax liability arise?
A. No income tax liability will arise in the tax year 2007-08 in respect of the transfer of the shares into public ownership on 22 February 2008.
If compensation is subsequently received in connection with the shares, an income tax liability may arise on the amount of that compensation for the tax year in which it is received, depending on the individual facts.
