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More investors caught by Shell merger

Financial Times: More investors caught by Shell merger

Investors in Royal Dutch face further confusion ahead of the unification of the oil group’s holding companies, it emerged this week.

Saturday 9 July 2005

By Alexander Jolliffe

Published: July 9 2005

Investors in Royal Dutch face further confusion ahead of the unification of the oil group’s holding companies, it emerged this week.

As has already been reported, UK investors in Royal Dutch who accept shares in the newly unified Royal Dutch Shell are treated as if they had sold their stock, triggering a potential capital gains tax (CGT) bill. Investors in Shell Transport & Trading do not face a liability.

The Association of Private Client Investment Managers and Stockbrokers estimates that about 3,000 UK investors could have to pay about £60m in tax. Apcims says British shareholders are the only people affected by “enormous” tax bills which are “totally unfair”.

But now it has emerged that people who live in the UK but are “non-domiciled” in the country for tax purposes also face a potential CGT bill if they have shares in Royal Dutch and accept the oil group’s offer.

John Riches, head of the private client group at Withers, a law firm, says these investors – known as resident non-domiciliaries – would bring any capital gain into the UK tax net.

Investors with small gains can shelter them by using their annual tax-free CGT allowance, currently £8,500.

But some investors may have bigger gains. Resident non-domiciliaries who have offshore trusts could transfer their Royal Dutch shares into the trusts, says Riches, who is also chairman of the UK technical committee at the Society of Trust and Estate Practitioners. He adds that these investors need to act quickly ahead of this month’s looming deadline. He says investors who do not have offshore trusts and are considering setting them up as vehicles to escape the CGT would need to make sure their tax bill was significantly higher than the trust set-up costs, which could reach £4,000.

This option does not apply to people who pay tax in the UK, because of legislation designed to prevent tax avoidance, says Mike Warburton at Grant Thornton, an accountancy firm.

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