All four societies are issuing shares, not cash bonuses, and according to a survey carried out for Nikko last year only 16 per cent of the Abbey National shares issued to members of the N&P when it was taken over last August were sold in the following four months.
Many of the bigger windfalls will go to older people, who have had more money in their accounts for longer periods, and many building society members will not be expert shareholders who know how sell their shares. But even shareholders who are determined to sit tight need to decide precisely how they will hold their shares
According to the Share Centre, an independent, low-cost dealing company set up in 1990, all four societies plan to offer shareholders just three choices.
One is simply to sell them at the best available price in the first few days of dealing, to take advantage of the pent-up demand from financial institutions and managers of tracker funds, who will be obliged to buy shares to maintain the balance of their portfolios.
The second is to hold the shares and the third is to transfer them free of charge into a single company personal equity plan (PEP) which each of the converting societies will offer. That way shareholders can earn tax-free dividends and the proceeds from subsequent sales will not count as capital gains. (They will of course incur a management charge which may offset the tax saving on holdings worth less than pounds 1,000 or so, so do your sums first).
The Inland Revenue has however agreed that any amount of free shares can be put into a PEP without affecting the existing allowance of up to pounds 6,000 a year in a general PEP plus up to pounds 3,000 in a Single Company PEP.
So if you open a single company PEP for your free shares you can buy up to pounds 3,000 worth of extra shares and PEP them too. For the majority of people who can afford to top up their holdings that is probably the best option.
But there is a catch. Investors still are only allowed one general and one single company PEP manager each tax year, so anyone receiving payouts in 1997/98 will not be able to take advantage of the converting societies' own offers if they already have a single company PEP for the year, and even if they are not holding a current single company PEP they will not be able to take up more than one converting society's PEP offer.
The way round this is for the investor specifically to tick the box on the allocation document which asks the societies to send you a share certificate. Armed with a share certificate you have 42 days from the receipt of shares to lodge them with any manager willing to accept the shares.
At least half the households in the country will be getting conversion shares, so at least half of all potential PEP buyers will get shares too. PEP providers who do not or cannot accept conversion shares will be rejecting half their potential business for the coming tax year.
But for one reason or another it might be difficult to channel them into a unit-linked or a tracker fund. So far only M&G has offered to accept building society shares direct into a general PEP. Another possibility then is to choose a self-select PEP which, under Inland Revenue rules, will have to be your general PEP for the year.
Two offers are already on the table, and others are certain to follow. NatWest Bank announced this week that if investors have their share certificates it will accept building society shares free of charge into Shareplan, a special self-select PEP set up by the bank for the purpose during the first 42 days.
Further free share issues can be added later without affecting investors' rights to buy up to pounds 6,000 worth of other shares for the PEP. There will however be an admin charge of 0.3 per cent plus VAT every six months, and a dealing charge of 1.5 per cent for subsequently trading shares.
The Share Centre is also setting up a special demutualisation general PEP into which all the coming share distributions can be invested, free of charge. There will be a flat quarterly management charge of pounds 15 (pounds 60 a year), which is expensive if you cannot add to your investment.
Anyone interested in getting a free guide giving further details which will be distributed in mid-February can ring 0800 800008.Reuse content