Tax nightmare faces Alliance & Leicester shareholders

Thursday, 11 September 2008 10:00

Alliance & Leicester shareholders have until October 10th to sell shares or face a tax nightmare as Banco Santander looks set to buy the lender.

While shareholders struggle through the heavy voting pack that arrived on their doors this week on the proposals to sell Alliance & Leicester, the deal could cause some headaches.

Under the deal, shareholders are not being offered cash from Santander for their shares, but Alliance & Leicester ordinary shareholders will receive one new Banco Santander Share for every three Alliance & Leicester Shares.

An 18p dividend per share will also be paid.

But as Santander is listed in Spain, the cross border deal creates some problems.

Gavin Oldham, chief executive of The Share Centre, said: "The 500,000 plus Alliance & Leicester shareholders have two options if, as expected, the bid from Santander is approved a week today; sell or face complicated tax arrangements.

"While there is little investors can do to stop the takeover, they do have until Friday October 10th to sell their shares. There's no cash alternative for the takeover."

Mr Oldham explained if shareholders choose not to sell their shares the taxation arrangements include an 18 per cent charge on Santander dividends, which can only count towards your UK tax bill if a special Spanish tax form is submitted and a full tax return is made to the HMRC.

Also the obligatory submission of the special Spanish tax form within a month of selling Santander shares, failing which you could be fined ?100 or more.

Mr Oldham added: "Investors who opt to sell, but who would like to reinvest in an alternative UK bank could look at HSBC or Barclays, both of whom The Share Centre currently hold as medium risk shares."

Customers who received 250 shares when Alliance & Leicester were demutualised in April 1997 had an initial holding valued at £1,332.

Since then, a total of £1,182 of dividends have been paid, but the shares are now worth just £741 (at the closing price on September 5th) as the bank has been hard hit by the credit crunch.

In August Alliance & Leicester reported a 99 per cent fall in profits from £290 million in the first half of 2007 to £2 million in the first half of 2008.

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