I was at the Glanbia meeting last week and I was just wondering when do we get the shares that will be spun out, and what are the tax implications of gifting or selling them. I’m told I would have to pay a large capital tax bill. How do I go about working this out?

The vote last week on the spin-out of Glanbia shares has raised the issue of the tax implications of sale or gift. I got similar queries last time round. These can effectively be divided into two groups: farmers who want to sell their shares and farmers who want to gift them. The biggest issue is capital gains tax, which in some ways is a good problem to be facing.

Working out the actual capital gains tax bill is not as simple as it might seem. Farmers will be issued the Glanbia shares at the market price at the time. Last time it was €6.70 each. This time I will take €17.03 as the share price taken to do the calculations on the Glanbia documents.

The manner in which the share spin-out operates is that each society member had 7.6% of his/her co-op shareholding cancelled. In exchange for each share cancelled, they then received 3.13 shares in Glanbia plc.

For example:

  • • Shares held in society pre spin-out: 1,000
  • • Society shares cancelled at spin-out: 76
  • • Plc shares issued in exchange for shares cancelled: 237

    • If the member then wants to sell the 237 plc shares, the base cost is the cost of the 76 society shares that were cancelled as part of the spin out.

    So it is down to when you got the society shares and what you paid for them.

    It is very difficult to give a “one size fits all” example. Without giving a history lesson, there are the former Waterford Foods and Avonmore Foods members. There were schemes in both those organisations, going back several years, where shares were acquired for nil cost on foot of various patronage schemes. Other shares were acquired at £1 or €1. Some members acquired shares in share trading schemes, which have operated since 2008. The last figure co-op shares traded at was €2.88 per share.

    Table 1 gives two examples, one where the society shares were free through a patronage scheme and one where they were bought for €2.88 each at the last share trading scheme. The plc share price I took was €17.03, again the one Glanbia used.

    If you got the society share for free the capital gain is effectively €17.03 per share netting €4,036 (I am ignoring selling costs to keep it simple, but these can be subtracted). With capital gains tax now at 33%, it means the tax is €4.036 x 33%, or €1,332. However, this will be reduced by the annual threshold. Each year, the first €1,270 of an individual’s net gains is not exposed to CGT. So the actual gain in this case is reduced to €4,036 - €1,270 = €2,766. This reduces the CGT bill to €2,766x33%, or €913.

    Where the farmer bought the 1,000 society shares at €2.88 each, the 76 shares cancelled cost him €219. This is subtracted from what he got for selling the 237 plc shares, leaving a gain of €3,817. Taking away the yearly threshold of €1,270, this reduces the CGT bill to €2,547x33%, or €841.

    The capital gains tax bill could be reduced further if you were unlucky enough to have capital losses carried forward from other investments that did not turn out as well.

    If you find this complicated the reason is that it is. To make this easier, Glanbia has done a lot of work to simplify the preparation of tax computations for its members. It has developed statements that are available to each member on request, which detail how they acquired their co-op shareholdings.

    It has come to an agreement with the Revenue Commissioners regarding the base cost to be attributed to each transaction type that will feature on the statements which are available to members.

    Given the relative complexity of the calculations, it strongly recommends (and so do I) that farmers engage a taxation professional to prepare the relevant computations. Glanbia has in the past brought in advisers from both IFAC and FDC to assist in the preparation of the capital gains tax calculations.

    Some tips

    For the farmer selling shares, he/she can reduce the CGT bill by doing it over a number of years to make full use of the annual exemption. If you are married or in a civil partnership, this exemption is available to each spouse or civil partner but is not transferable. You could, however, transfer some share into your spouse’s name and allow him/her to sell their shares independently.

    You can get your own share statement by contacting Glanbia plc directly: Glanbia plc, Glanbia House, Kilkenny, Ireland. Call, 056-777-2200, or email ir@Glanbia.ie.