An extra tax-free incentive

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The Independent Online
While researching for my coming book, Investment Made Easy, I discovered that more than 110 British companies offer perks to their shareholders. In some cases, you need to own only one share; in others, many more, sometimes with a qualifying period, sometimes without.

The best-known example is the All-England Lawn Tennis and Croquet Club. Owners of its debenture stock are entitled to centre court seats at the Wimbledon tennis championships. No other company offers such an attractive perk, but many others are well worth having.

You might already own shares in a company that offers perks to shareholders or you might be considering making an investment in such a company. Whatever your views about perks, it must pay you to know the full range of privileges you can obtain simply by becoming a shareholder.

Hargreaves Lansdown Asset Management Limited, Embassy House, Clifton, Bristol BS8 1SB publishes an annual booklet giving details of all shareholder perks. It usually sells for pounds l99, but the company often has a period of free offers.

Seymour Pierce Butterfield, the stockbrokers (071-814 8700), sells a comprehensive annual guide for pounds 5. This shows the minimum shareholding required, any qualification period and the details. In many cases, the offer applies to all shareholders - one share would be enough. SPB also shows the dividend yield and the p/e ratio at the end of the previous year and gives each company a rating according to its shares' marketability.

The shareholder perks on offer include discounts on carpets, clothing, clocks and watches, DIY goods, dry cleaning, furniture, groceries, holidays, home furnishing, hotel bills, jewellery, cars and spares, shoes, silverware, sporting goods, wines and spirits and travel. They range from a free lunch or small hamper of company products at the AGM to P&O's 50 per cent discount on the fare for a trip for four with a car on the cross-Channel ferry.

Among the more useful and significant benefits, you will find Airtours and other travel companies offer 10 per cent off holidays, Asprey's allows a 15 per cent discount, Austin Reed 15 per cent, Burton 12.5 per cent (including sale goods), Forte, Ladbroke and Vaux Group 10 per cent off hotel accommodation and restaurant bills and Johnson Group Cleaners and Sketchley 25 per cent off dry cleaning. Lonrho offers 25 per cent off Metropole hotel bills and a wide range of other benefits, Manders 25 per cent off paint, Meyer International 10 per cent off building supplies and Moss Bros 10 per cent off formal wear hire charges.

Next has a one-occasion discount of 25 per cent, Park Foods 20 per cent off Christmas hampers, Pentos 10 per cent off all books from Hatchards, Dillons, Athena, Rymans and Wildings, Rainers 10 per cent for jewellery and Trafalgar House a 15 per cent discount for selected QE2 cruises together with certain other discounts. Even fish and chips are catered for, with Harry Ramsden's 20 per cent off restaurant meals on Mondays to Thursdays.

The fact that discounts are available to shareholders will make many purchasers wonder if they too could negotiate a discount without becoming shareholders. In particular, housebuilders, car dealers and hoteliers would be very susceptible to any approach in these recessionary times. So, when you judge the value of a perk, it has to be measured against the best discount you could obtain in normal bargaining.

One of the main attractions of shareholder perks is that they are tax-free. Any dividend paid to you is subject to taxation, but the extra money you would otherwise have paid for a perk comes out of your taxed income. The example of P&O's Dover-to-Calais ferry crossing illustrates this point very well. The cost at near-peak times for a family of five with a car would be pounds 280 return. A 50 per cent discount would therefore save pounds 140. At the higher rate of tax of 40 per cent, the benefit in terms of taxable income would be pounds 233, and pounds 187 at 25 per cent - a more substantial perk than might appear at first sight.

P&0 spells out the qualifications to its scheme. You have to own at least 600 5.5 per cent pounds l redeemable non-cumulative preference shares (300 for half the entitlement) and be on the register before the end of the previous year. Only the individual on the share certificate qualifies and can travel with a maximum of three adults (two children counting as one adult). Certain peak times are excluded, and the journey must be a return. The same 50 per cent discount is available on all Dover routes, 40 per cent on Portsmouth-Le Havre/Cherbourg and 25 per cent on Cairnryan-Larne. The number of journeys is unlimited.

There is, of course, a tremendous difference between a one- off perk like Iceland Frozen Foods' few vouchers worth a total of pounds 16, and a recurring perk like Sketchley's 25 per cent off dry cleaning. You can see from the P&O example that the detail is important and that is where the booklets will help. The main point is that it is very rarely worth buying shares just for the perks. The exception is when your way of life results in above-average use of the goods or services that are subject to substantial shareholder perks.

For instance, if you are likely to use P&O's ferries often, you should consider an investment in 600 of the P&0 5.5 per cent pounds l redeemable non-cumulative preference shares which, at the current price of 155p, would cost you pounds 930. A comparable preference share without the perk would cost about 65p, so for 600 you would be paying a premium of pounds 540. The extra cost would obviously be justified if you were going to travel by cross-Channel ferry more than once a year.

The author is an active investor who may hold any shares he recommends in this column. Shares can go down as well as up. Mr Slater has agreed not to deal in a share within six weeks before and after any mention in this column.

(Photograph omitted)

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