Justin Urquhart Stewart answers your shares queries
In his last ever 'Ask the Expert' for Working Lunch, Justin Urquhart Stewart from Seven Investment Management answers your shares questions.
As usual, click on one of the questions in blue below to skip straight to that answer, or scroll down the page to read them all.
1. Are AIM shares excluded for Inheritance Tax purposes? If that is the case, why not ordinary shares?
Yes they are - the government offers relief on AIM shares to encourage people to invest in smaller companies that may not otherwise have the same access to capital as their larger peers. The government is effectively offering support to smaller companies by incentivising investors to support them.
At present, inheritance tax is due if an estate is valued over the current inheritance tax threshold (£325,000 in 2010-11). The tax is payable at 40 per cent on the amount over this threshold.
There is 100% relief from inheritance tax for investments in qualifying AIM companies (to become a qualifying company there is a list of stringent rules that must be met). However, the investment must have been held for at least two years before a chargeable transfer for inheritance tax purposes.
2. I had 250 shares in Bradford & Bingley when it collapsed. I will receive no compensation for these shares. Do I have any recourse?
As we know there is a risk to investing in shares - shareholders receive next to nothing if the firm goes bankrupt, but they also have a greater reward potential through exposure to share price appreciation when the company succeeds. In most cases there is no redress if the company fails
In the rather high profile case of Bradford and Bingley many shareholders felt exceedingly bitter following the governments rather acrimonious nationalisation following the mortgage debacle in 2008. Accordingly some groups are pursuing legal action to seek redress.
For shareholders, there are a couple of options left:
Peter Clokey, the PriceWaterhouseCooper's valuer appointed by the government, stated on 5th July that he has determined that there shall be no recompense for dispossessed shareholders in Bradford & Bingley.
You can write to Peter Clokey asking to reconsider his Assessment Notice. This is effectively self-representation. Each shareholder will be assessed individually although the likely hood of any such change in decision is doubtful. However, if you don't ask, you don't get!
Secondly, you can join an action group. To name a couple:
Bradford & Bingley Shareholders Action Group (BBSAG)
Bradford & Bingley Rights Issue Action Group under Leon Kaye Solicitors
However, many shareholder action groups may require a voluntary financial contribution in order to take or pursue legal action. Both options have their pros and cons. On the one hand, if everyone joins forces, everyone shares the same financial burden if things go adverse, but get to reap the rewards of remuneration if things go in their favour. Alternatively, it could be more costly and expensive to participate than the compensation is actually worth. It is unlikely however that either option will get shareholders any compensation, but they are the only options remaining.
3. Is it the norm for American companies not to pay dividends? I have shares in an American company but it has paid me no dividends.
The principle for US dividends is the same as in the UK; dividends are paid to shareholders when the company earns a profit. The board of directors will determine whether it's appropriate to distribute a dividend and will act in the best interest of the firm and its stakeholders. If no dividend is being paid then either no profit is being made or it is being re-invested. Typically businesses that are looking to grow rapidly rarely offer dividends because their profits are reinvested to sustain higher than average growth while more mature and stable companies tend to offer dividends to their stockholders.
4. Can you please tell me if all AIM shares can now go in an ISA?
When subscribing to an ISA you can put your money into the shares of any company listed on a 'recognised stock exchange', or in almost any fund run from the UK. A recognised stock exchange means most major markets, for example the New York or London Stock Exchanges.
AIM, the Alternative Investment Market, is a market for smaller companies in the UK however and is not a recognised stock exchange. As general rule, you cannot put AIM shares into an ISA. However, a few AIM companies, mostly mining and oil shares, can be put in an ISA because they also have another listing on a recognised stock exchange in, for example, Canada or Australia. If you are unsure as to whether you can put a particular share in an ISA, it is advisable to speak to your broker first.
5. I have lost track of a company in which I hold shares. According to my internet searches it has been sold on a number of times. How can I find out what has happened to my shares?
If you have lost track of a company but have details of your original holding the best place to go will be the share registrar. The name of the registrar may be on your original share certificate but if not it may be best to check with the three main registrars in the UK - Capita, Equiniti (previously Lloyds) and Computershare. They will be able to trace the history of the company, such as whether it has changed its name, gone into liquidation been taken over or merged.
6. How old do you have to be to hold a share?
For most brokers the minimum age that they will allow you to open an account to buy and hold shares is normally 18. However, your parents can open an account on your behalf and hold shares for you until you reach 18, when they can be easily transferred into your own name. This would require your parents to complete a stock transfer form which can be obtained from the Registrars.
7. How and where can a novice buy and sell shares on an everyday basis? Do you need a broker (which seems a bit scary) or is there anywhere on the high street where you can pop in? How much does it cost, do you need a minimum amount (without resorting to unit shares) and is there any tax to pay?
You do not need a broker but you can use one should you wish. There are a number of online share dealing firms that offer varying commission rates. I have provided internet addresses for a number of these and I'll let you make your own comparisons between them in regards to their cost and minimum amounts.
There are three different Income Tax rates on UK dividends. The rate you pay depends on whether your overall taxable income (after allowances) falls within or above the basic or higher rate Income Tax limits.
The basic rate Income Tax limit is £37,400, and the higher rate Income Tax limit is £150,000, for the 2010-11 tax year.
Here are the tax rates, applied after deduction of Personal Allowance and any Blind Person's Allowance:
- Dividend income at or below the £37,400 basic rate tax limit - 10%
- Dividend income at or below the £150,000 higher rate tax limit - 32.5%
- Dividend income above the higher rate tax limit - 42.5%
Investments are also liable for capital gains tax (CGT) . If you dispose of your shares and the gain is above your annual CGT allowance (after deducting any losses and applying any reliefs), which at present is £10,100, you will pay tax on that gain of 18 per cent and 28 per cent tax rates (the tax rate used depends on the total amount of taxable income).
The views expressed are those of Justin Urquhart Stewart not the BBC.