Many of us would have seen the screenshot on the GME page and around the internet of a Freetrade community manager stating that Freetrade would not be able to process the dividend proposed by Gamestop and that a cash alternative would be awarded.
Could we please have clarification on why this is?
How this would affect those of us that hold our shares in ISA accounts?
How the value would be calculated?
“On March 31, 2022, GameStop Corp. (the “Company” or “GameStop”) announced its plan to request stockholder approval at the upcoming 2022 Annual Meeting of Stockholders (the “Annual Meeting”) for an increase in the number of authorized shares of Class A common stock from 300,000,000 to 1,000,000,000 through an amendment to the Company’s Third Amended and Restated Certificate of Incorporation (the “Charter Amendment”) in order to implement a stock split of the Company’s Class A common stock in the form of a stock dividend and provide flexibility for future corporate needs.”
If free-trade can’t handle this, they ain’t doing themselves any favours.
A cash payment in lieu of the stock dividend is not an acceptable outcome, fine for fractional shares, but for those of us holding full shares, issuing 3 shares for every 1 is what is required.
And before people reply and say just buy more when you get the payment, no - that is not an acceptable solution, prices can change significantly on this stock between the split and issuing the cash, and having to then buy after taxes and fx fees is NOT an acceptable solution
The excuse of not being set up to handle x from freetrade is an old one and getting annoying, too much focus on rolling out to other countries when some of the basics are still not in place
I agree entirely.
My ISA is maxed (£20k) in GME shares. I was planning on maxing it out again the moment the new tax year starts but now I’m looking at moving brokers and cancelling my freetrade plus subscription.
Can anyone confirm how a cash alternative would be taxed? If its at my personal rate then I will immediately lose 40% of its value which is just crazy. If it can be issued inside the ISA and not be subject to tax then I may consider sticking with freetrade but it would definitely not be the ideal situation.
Surely the cash will just go into your ISA like any other dividend?
Here’s some clarification: Freetrade can support where a stock split is being implemented in the form of a stock dividend (i.e. a mandatory event where the dividend is paid as stock to everyone). What we can’t support currently are cash dividends where customers have the option to elect to take them as stock. When there is official confirmation from Gamestop on this event, we’ll be able to provide further details.
In an ISA US dividends are taxed at source
Yeah I know, but he was talking about his 40% personal tax rate which would be a UK tax I believe.
I don’t know if a US stock dividend would be taxed at source?
Thank you for the clarification Rajan07.
Dividend tax in ISAs
ISAs protect your UK investments from owing tax. But ISAs don’t help in the same tax-efficient way on your foreign investments. So if you receive US dividends in your ISA, the 15% tax will apply. With Freetrade, this all happens automatically, and you won’t be left with any forms to fill or paperwork to file.
Source: How to buy US shares in the UK - Freetrade | Learn
Thanks for clarifying, Rajan.
At this stage, what we do know is that while Gamestop’s board has approved the idea of a stock dividend the action will still have to be approved by the shareholders.
If the stock split does go ahead, I would expect to receive the shares I am entitled to rather than cash. The terms and conditions clearly state that Freetrade will make ‘reasonable endeavours’ to ensure this is the case. They also specifically mention that an ‘increased number of Securities’ is a possible outcome from a corporate action such as this, so, as you mention, Rajan, Freetrade appears to be able to facilitate a stock dividend.
I know all that, But I don’t think it’s applicable to what he was asking. There is a 15% dividend on US cash dividends.
But if they issue a stock dividend to drivewealth or whoever and then that is sold and cash distributed does that tax still apply? I don’t know and the answer is not on that page
Anyway, from Rajan’s post looks like it may well be supported
A few people have raised questions about taxation on the proposed stock dividend. As far as I can see, the stock dividend would not be a taxable event as no cash alternative would be offered.
Effectively, it looks like Gamestop is proposing to do a stock split using stock dividend as the mechanic. That would increase the number of issued shares while the value of the company stays the same. So, where you used to have 1 Gamestop share trading at $190, you’d maybe now have 7 worth $27.14 each. There’s no gain to tax. Any liability for tax would only kick in if you subsequently sell your shares at a profit.
what happen if you have an unequal numver of shares (or fractions) in a stock split. I dont hold $GME but do hold $TSLA on both freetrade and orca.
The spilt is handled the same with fractional and whole shares but given that fractional shares go to .0000007 there will be a point to which they round off at.
Freetrade still doesn’t allow us to vote though so all this worry for Dividends may be pointless as there seems to be a lot of shares held in a brokerage that forfeits our right to have a say.
I would say, now more than ever it is vital that shareholders get to have a say in the upcoming meeting in June.
Perhaps all of those worried about how a dividend will be handled should consider what other actions are needed to perhaps not only ensure they get the correct share dividend but also the vote that may secure such a thing.
We also have to consider the transaction cap is STILL in place, I’m only in £40k but still have to liquidate in chunks and pay x2 fees (i wonder if that works out more expensive) if i want to get out.
I shudder to think what would happen if this SP did jump considerably. You would be there all day trying to sell and each transaction would carry individual FX fees and charges.
But in a stock split you end up with more shares so for example if it was 2 for 1 even if you had 0.0000001 shares it wouldn’t matter because you would end up with 0.0000002 shares post split
There is a rounding that takes effect but I can’t remember to which decimal place. I’m sure it was mentioned here a few weeks ago. It’s so tiny that it could be 1p-2p territory.
This would be a standard stock split, I’ve had no experience with the proposed GME split.
I can see why they would need to round it in a reverse split, but doesn’t seem necessary in an ordinary split
Good point, maybe it was a reverse split.