What it means
In specie is Latin for "in its actual form", and in finance it simply means the asset itself changes hands. The alternative, transferring in cash, means selling the asset first and moving the proceeds instead.
Three settings dominate. Pension and investment transfers between providers, distributions in specie where a company pays a dividend or returns capital in assets, and contributions in specie where an owner puts an asset rather than money into a company or fund.
The main attraction is staying invested. Selling a portfolio in order to move it means time out of the market, dealing costs and a spread on every line, whereas an in specie transfer of the same holdings avoids all three.
The main complications are legal and tax. Transferring property or shares can trigger stamp taxes, capital gains events, valuation requirements and lender consents, and the receiving party has to be able to hold the asset in the first place.
Valuation matters more than people expect. A dividend in specie is measured at the asset's market value on the transfer date, so both the distributable reserves needed and the tax charged depend on a valuation that someone has to defend.
A frequent variant is the partial in specie transfer, where liquid holdings move as assets and anything the new provider cannot hold is sold. It is a sensible compromise, but it does mean part of the portfolio is out of the market for a period.
In practice
Real-world examples.
Example
A self-invested pension holder moves to a cheaper platform and transfers 22 fund holdings in specie. The units are re-registered to the new provider, so the money is never out of the market at any point.
Example
A trading company distributes a warehouse it no longer needs to its parent as a dividend in specie. The warehouse is valued at $1,800,000 on the transfer date, and that amount is charged against distributable reserves.
Example
An investor subscribes for shares in a new holding company by contributing an existing shareholding in specie rather than cash. An independent valuation is required so that the shares issued match the value actually received.
Formula
Calculation
There is no single formula, but an in specie transfer is measured at market value on the transfer date and compared with the cash alternative:
Cost of selling and rebuying = (Portfolio value x Dealing and spread cost) + Market movement while out of the market
An investor transfers a $600,000 portfolio to a new provider. Selling and rebuying would cost about 0.5% in dealing charges and spread, and the portfolio would sit in cash for four days.
Dealing and spread cost = $600,000 x 0.5% = $3,000.
If the market rises 1% during those four days, the extra cost of being out is $600,000 x 1% = $6,000.
Total avoidable cost = $3,000 + $6,000 = $9,000, against an in specie transfer fee of $250, so the in specie route is clearly cheaper here.Case study
Seen in the real world.
Pentland Mills is an illustrative, fictional group that decided to move a freehold depot out of its trading subsidiary and into the parent, to keep the property away from trading risk. The obvious route was a sale at market value, but the subsidiary did not want the cash and the transaction would have needed funding.
Instead the subsidiary declared a dividend in specie of the depot, valued at $2,400,000, which required an independent valuation, confirmation that distributable reserves exceeded that amount, and the lender's consent because the depot secured a facility. The fictional group's advisers also modelled the stamp duty and capital gains position before anything was signed.
The transfer completed with no cash moving at all, and the depot sat in the parent within a fortnight. The finance director's summary was blunt: in specie saved the funding, but it did not save the diligence.
Watch out
Common mistakes.
- Assuming an in specie transfer is tax-free because no money changes hands. Capital gains, stamp taxes and distribution taxes can all apply on the market value of the asset.
- Starting a pension or portfolio transfer without checking what the receiving provider can actually hold. Unsupported holdings get sold anyway, which defeats much of the purpose.
- Declaring a dividend in specie without confirming that distributable reserves cover the asset's market value. An unlawful distribution may have to be unwound.
Questions
People also ask.
Is an in specie transfer always faster than a cash transfer?
No, re-registering many holdings can take longer than selling and remitting cash, although the assets stay invested throughout.
How is a dividend in specie valued?
At the market value of the asset on the date of the distribution, supported by an independent valuation where the asset is property or an unlisted holding.
Can pension contributions be made in specie?
In many jurisdictions yes, for eligible assets such as listed shares or commercial property, subject to the scheme rules and the usual contribution limits.
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