RBS 2003 Annual Report Download - page 226

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Taxation for US Holders (continued)
Taxation of capital gains
A US Holder that is not resident (or, in the case of an
individual, ordinarily resident) in the UK will not normally be
liable for UK tax on capital gains realised on the disposition of
such holder’s non-cumulative dollar preference share or ADR
unless at the time of the disposal, in the case of a corporate
US Holder, such US Holder carries on a trade, in the UK
through a permanent establishment or, in the case of any other
US Holder, such US Holder carries on a trade, profession or
vocation in the UK through a UK branch or agency and such
non-cumulative dollar preference share or ADR is or has been
used, held or acquired by or for the purposes of such trade (or
profession or vocation), permanent establishment, branch or
agency. Special rules apply to individuals who are temporarily
not resident or ordinarily resident in the UK.
An exchange by a US Holder of non-cumulative dollar
preference shares or ADRs for other shares in the company will
not give rise to a charge to UK tax on capital gains even if
such US Holder would be subject to tax on a disposal of such
holder’s non-cumulative dollar preference shares or ADRs.
A US Holder will, upon the sale, exchange or redemption of a
non-cumulative dollar preference share or ADS representing
preference shares, generally recognise capital gains or losses
for US federal income tax purposes (assuming in the case of a
redemption, that such US Holder does not own, and is not
deemed to own, any ordinary shares of the company) in an
amount equal to the difference between the amount realised
(excluding in the case of a redemption any amount treated as
a dividend for US federal income tax purposes) and the US
Holder’s tax basis in the non-cumulative dollar preference
share or ADS.
A US Holder who is liable for both UK and US tax on a gain
recognised on the disposal of the non-cumulative dollar
preference share or ADR will generally be entitled, subject to
certain limitations, to credit the UK tax against its US federal
income tax liability in respect of such gain.
Estate and gift tax
A non-cumulative dollar preference share or ADR held by an
individual, whose domicile is determined to be the United
States for purposes of the Estate Tax Treaty and who is not a
national of the UK, will not be subject to UK inheritance tax on
the individual’s death or on a lifetime transfer of the non-
cumulative dollar preference share or ADR, except in certain
cases where the non-cumulative dollar preference share or
ADR (i) is comprised in a settlement (unless, at the time of the
settlement, the settlor was domiciled in the United States and
was not a national of the UK); (ii) is part of the business
property of a UK permanent establishment of an enterprise; or
(iii) pertains to a UK fixed base of an individual used for the
performance of independent personal services. The Estate Tax
Treaty generally provides a credit against US federal tax liability
for the amount of any tax paid in the UK in a case where the
non-cumulative dollar preference share or ADR is subject both
to UK inheritance tax and to US federal estate or gift tax.
UK stamp duty and stamp duty reserve tax (“SDRT”)
The following is a summary of the UK stamp duty and SDRT
consequences of transferring an ADR in registered form
(otherwise than to the custodian on cancellation of the ADS) or
of transferring a non-cumulative dollar preference share.
A transfer of a registered ADR executed and retained in the
US will not give rise to stamp duty and an agreement to
transfer a registered ADR will not give rise to SDRT.
Stamp duty or SDRT will normally be payable on or in respect
of transfers of non-cumulative dollar preference shares and
accordingly any holder who acquires or intends to acquire
non-cumulative dollar preference shares is advised to consult
his own tax advisers in relation to stamp duty and SDRT.
X-CAPs
United States
Because the X-CAPs have no stated maturity, can be
exchanged for preference shares or ADSs at the option of the
company and would be treated as if they were preference shares
in a winding-up of the company, and because the company
may elect not to make payments on the X-CAPs, the X-CAPs
will be treated as equity for US federal income tax purposes.
Payments (including any UK tax withheld there from, as to
which see below) will constitute foreign source dividend
income for US federal income tax purposes to the extent paid
out of the current or accumulated earnings and profits of the
company, as determined for US federal income tax purposes.
Payments will not be eligible for the dividends received deduction
allowed to corporations. For foreign tax credit limitation purposes,
payments will generally constitute ‘passive income’, or in the
case of certain US Holders, ‘financial services income’.
Subject to applicable limitations that may vary depending upon
a holder’s individual circumstances, dividends to noncorporate
US Holders in taxable years beginning before 1 January 2009
will be taxable at a maximum tax rate of 15%. Noncorporate
US Holders should consult their own tax advisers to determine
whether they are subject to any special rules that limit their
ability to be taxed at this favourable rate.
A US Holder will, upon the sale, exchange or redemption of X-
CAPs, generally recognise a capital gain or loss for US federal
income tax purposes in an amount equal to the difference
between the amount realised and the US Holder’s tax basis in
the X-CAPs (assuming, in the case of a redemption, that such
US Holder does not own, and is not deemed to own, any
ordinary shares of the company). A US Holder who is liable for
both UK and US tax on a gain recognised on the disposal of
the X-CAPs will generally be entitled, subject to certain
limitations, to credit the UK tax against its US federal income
tax liability in respect of such gain.
Gain or loss will not be recognised by a US Holder upon the
exchange of X-CAPs for preference shares or ADSs pursuant
to the company’s exercise of its exchange right. A US Holder’s
basis in the preference shares or ADSs received in exchange
Shareholder information continued
Shareholder information