Michael Stoddart, chairman of Electra, wrote to shareholders yesterday to inform them that the Revenue has refused clearance for the proceeds of the pounds 544m tender offer to be treated as capital rather than income. This means that higher-rate taxpayers who tender their shares will not be able to take advantage of the pounds 7,000-a-year capital gains tax exemption and will be liable for the difference between what they paid for the shares and the 786p-a-share price at which the shares arebeing bought back. It is believed that up to 15 per cent of Electra's capital is in the hands of individual investors.
The ruling which took Electra by surprise appears to be part of a wider crackdown by the Revenue on investment trusts. Advice from Electra's solicitors and leading counsel was that the clearance under Section 703 of the Income and Corporation Taxes Act 1988 would normally have been given.
The reconstruction proposals are a key plank in Electra's bid defences, and the Electra camp sought to play down the implication of the decision. It insisted that the numbers affected were small and few private investors had been expected to subscribe to the tender. But analysts pointed out that with the bid battle finely poised, the views of the 10 per cent of shareholders potentially affected by the ruling could be significant.
"It is very odd," said Iain Scoullier, investment trusts analyst at Warburg Dillon Reed. "It does add to the confusion."