The Daily Telegraph - Saturday - Money
Spanish tax headache for UK’s Santander investors
Investors in Santander are set to benefit from a near £6bn rights issue – but have to deal with a complex tax hurdle as a result.
UK-based investors do not directly hold shares in the Madrid listed bank. Instead, they hold CREST Deposit Interests (CDIs). A CDI is a type of share that represents a stock traded on an exchange outside the UK.
There are 1.4 million individual Santander shareholders in the UK, mostly as a result of the bank’s takeover of Alliance & Leicester and Abbey National. Most hold their CDIs through the bank’s “nominee service”.
When a capital gain is made, there is an obligation to report that gain to the Spanish tax authorities or face an initial €100 (£89) fine – which can then rise. In a typical rights issue, investors would be given the option to buy discounted Santander shares or sell their right to do so. However, in this case, Santander has arranged the automatic sale of the rights, with nominee service investors being sent a cheque. Their existing CDI holding will then be watered down.
This payment is being treated as a capital gain. To report it, investors have to fill out a “Form 210” and have it delivered to the Spanish tax authorities in Madrid, which may require a Spanish tax representative. They must also include an HMRC certificate declaring them a UK tax resident to exempt themselves from paying tax to Spain. Whether in practice the Spanish authorities wish to have myriad small gains reported is not known. Those who bought Santander CDIs through a platform may be able to take up their rights.