HSBC 2015 Annual Report Download - page 477

HSBC HOLDINGS PLC
475
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Taxation of shares and
dividends
Taxation – UK residents
The following is a summary, under current law, of certain UK
tax considerations that are likely to be material to the
ownership and disposition of HSBC Holdings ordinary
shares. The summary does not purport to be a
comprehensive description of all the tax considerations that
may be relevant to a holder of shares. In particular, the
summary deals with shareholders who are resident solely in
the UK for UK tax purposes and only with holders who hold
the shares as investments and who are the beneficial owners
of the shares, and does not address the tax treatment of
certain classes of holders such as dealers in securities.
Holders and prospective purchasers should consult their own
advisers regarding the tax consequences of an investment
in shares in light of their particular circumstances, including
the effect of any national, state or local laws.
Taxation of dividends
Currently no tax is withheld from dividends paid by
HSBC Holdings.
UK resident individuals: periods to 5 April 2016
For periods up to 5 April 2016 dividends are paid with an
associated tax credit which is available for set-off by certain
individual shareholders against any liability they may have
to UK income tax. Currently, the associated tax credit is
equivalent to 10% of the combined cash dividend and tax
credit, i.e. one-ninth of the cash dividend.
For individual shareholders who are resident in the UK for
taxation purposes and liable to UK income tax at the basic
rate, no further UK income tax liability arises on the receipt
of a dividend from HSBC Holdings. Individual shareholders
who are liable to UK income tax at the higher rate or
additional rate are taxed on the combined amount of the
dividend and the tax credit at the dividend upper rate
(currently 32.5%) and the dividend additional rate
(currently 37.5%), respectively. The tax credit is available
for set-off against the dividend upper rate and the dividend
additional rate liability. Individual UK resident shareholders
are not entitled to any tax credit repayment.
UK resident individuals: periods from 6 April 2016
If draft legislation for the Finance Bill 2016 is enacted in its
current form, the dividend tax credit will be abolished from
6 April 2016, to be replaced by a £5,000 annual exemption
for dividend income received by individual shareholders. In
addition, the income tax rates on dividend income outside
the £5,000 annual allowance would change to 7.5% for
basic rate taxpayers, 32.5% for higher rate taxpayers and
38.1% for additional rate taxpayers.
UK resident companies
Shareholders that are within the charge to UK corporation
tax should generally be entitled to an exemption from UK
corporation tax on any dividends received from HSBC
Holdings. However, the exemptions are not comprehensive
and are subject to anti-avoidance rules. Shareholders
within the charge to UK corporation tax are also not
entitled to tax credits on any dividends received (even if
received before 6 April 2016).
If the conditions for exemption are not met or cease to be
satisfied, or a shareholder within the charge to UK
corporation tax elects for an otherwise exempt dividend to
be taxable, the shareholder will be subject to UK
corporation tax on dividends received from HSBC Holdings
at the rate of corporation tax applicable to that
shareholder.
Scrip dividends
Information on the taxation consequences of the HSBC
Holdings scrip dividends offered in lieu of the 2014 fourth
interim dividend and the first, second and third interim
dividends for 2015 was set out in the Secretary’s letters to
shareholders of 20 March, 5 June, 26 August and
4 November 2015. In no case was the difference between
the cash dividend foregone and the market value of the
scrip dividend in excess of 15% of the market value.
Accordingly, for individual shareholders, the amount of the
dividend income chargeable to tax, and, the acquisition
price of the HSBC Holdings ordinary shares for UK capital
gains tax purposes, was the cash dividend foregone.
Taxation of capital gains
The computation of the capital gains tax liability arising on
disposals of shares in HSBC Holdings by shareholders subject
to UK tax on capital gains can be complex, partly depending
on whether, for example, the shares were purchased since
April 1991, acquired in 1991 in exchange for shares in The
Hongkong and Shanghai Banking Corporation Limited, or
acquired subsequent to 1991 in exchange for shares in other
companies.
For capital gains tax purposes, the acquisition cost for
ordinary shares is adjusted to take account of subsequent
rights and capitalisation issues. Any capital gain arising on a
disposal by a UK company may also be adjusted to take
account of indexation allowance. If in doubt, shareholders
are recommended to consult their professional advisers.
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of transfer
generally will be subject to UK stamp duty at the rate of 0.5%
of the consideration paid for the transfer, and such stamp
duty is generally payable by the transferee.
An agreement to transfer shares, or any interest therein,
normally will give rise to a charge to stamp duty reserve tax
at the rate of 0.5% of the consideration. However, provided
an instrument of transfer of the shares is executed pursuant
to the agreement and duly stamped before the date on
which the stamp duty reserve tax becomes payable, under
the current practice of UK HM Revenue and Customs
(‘HMRC’) it will not be necessary to pay the stamp duty
reserve tax, nor to apply for such tax to be cancelled. Stamp
duty reserve tax is generally payable by the transferee.
Paperless transfers of shares within CREST, the UK’s paperless
share transfer system, are liable to stamp duty reserve tax at
the rate of 0.5% of the consideration. In CREST transactions,
the tax is calculated and payment made automatically.