By GRAHAM FROST 10/07/2006
Standard Life was admitted to the London Stock Exchange at 8am Monday 10 July. The share offer price was 230p and the Preferential offer 218.5p. Standard Life confirmed that Preferential offer applications of up to £2,000 will be met in full, while applicants above this level will receive 70% of their application. The shares started trading at around 240p.
| "Standard Life's market capitalisation will propel the company into the FTSE 100." |
Standard Life's market capitalisation at flotation is therefore in excess of £4.6 billion, similar to Alliance & Leicester and Northern Rock, propelling the company into the FTSE 100. This means tracker funds will have to buy the shares, potentially boosting the price. The share price could also benefit if Standard Life becomes a takeover target in future, so there is an argument for not selling immediately, even if you don't believe in Standard Life's business prospects.
If you hold windfall/preferential offer shares continuously for at least a year (10 July 2007) you'll receive 1 bonus share for every 20 held. In simple terms this is a 5% return, so should not be scoffed at. However, you should not neglect the risks of stockmarket investing, especially when holding shares in an individual company; a 5% bonus would soon lose its attraction if the share price falls by 20% over the year.
| "Beware transferring your windfall/preferential offer shares into a tax wrapper ..." |
If you wish to benefit from the bonus then beware transferring your windfall/preferential offer shares into a tax wrapper such as an ISA or pension. The shares will need to be sold and then repurchased to do so, invalidating the bonus. Assuming you wish to hold the shares longer term you might consider transferring them into a tax wrapper after receiving bonus shares, as the bonus will likely outweigh any income tax savings meanwhile (although review whether a rising share price over the year could leave you with a capital gains tax bill).
When selling windfall shares the full proceeds are usually liable to capital gains tax, as HMRC deems such shares to have a zero purchase price. However, you can offset realised gains against your capital gains tax allowance (£8,800 in 2006/07), if available, and could also benefit from 'Taper Relief' if holding the shares for three years or more (maximum Taper Relief kicks in at 10 years).
Finally, don't neglect your Standard Life policies. The decision on whether to continue holding these is totally independent of that regarding windfall shares. You may face a penalty for encashing/surrendering a policy, especially with-profits, so review carefully before making a decision.