Following the announced sale by Vodafone of its stake in a US mobile phone network, Verizon Wireless, what are the UK tax implications for owners of Vodafone shares?
It’s anticipated that Vodafone shareholders will receive shares in Verizon Communications, Verizon Wireless’s parent (with the base cost for capital gains tax purposes split between the two holdings) as well as a special dividend. As a result of this, the Vodafone shareholder will continue to hold Vodafone shares, whose value will have reduced, and a holding in Verizon Communications, a US company.
The special dividend will be taxable in the UK, unless the investment is held within an ISA or pension fund. However, any dividend payments from Verizon Communications, a US company, will be subject to a 30% withholding tax unless the shareholder makes a claim under a double tax agreement. Under the UK/US convention, the withholding tax rate is 15% for individuals and 0% in respect of qualifying pension schemes.
Making a claim.
To allow dividends to be taxed at the 15% rate rather than the full 30%, you need to complete the W-8BEN form in advance of receiving any dividends. If you don’t do this in time, you may have to complete a US tax return to request a refund.
Holding Vodafone shares within an ISA isn’t given any recognition under a double tax agreement and doesn’t qualify for a 0% rate in the same way as a holding within a pension fund.
Vodafone shareholders are likely to end up with shares (and therefore dividends) from a US company. Ensure you complete the relevant form to reduce the amount of withholding tax from 30% to 15% – of course we can do this for you if you wish when the time comes!