Tax on employee share scheme

alice

My partner signed up to join his employer's share save scheme 3 years ago. With about 6 months to go before the end of the savings term and the buying of the shares at the preferential rate his company were bought out by another firm. He is still able to buy the shares at the preferential rate but will have to pay tax on the difference between that rate and the share price at the date of purchase and capital gains on the benefit if and when he should sell them. This hardly seems fair as he did not want his company to sell out to another firm and had no control over their decision - in other words he (and many others like him) went into the share save scheme as a subsidised investment, certainly, but also as a sign of faith in the company. I wrote to the tax office explaining the situation and did not get a straight response - only copies of legislation!! Does anyone know if there is any leeway on this??

Alice

mountainofdebt

Not sure what you are asking but I think you are asking does your partner pay tax on the gains he makes on the difference between the price he pays for the shares and the price he sells them at.

If that is the case then the answer is yes but it is a qualified yes.

Each tax year you have a capital gains allowance and any gains that you make can be offset using this allowance. Any gains over this allowance are subject to tax. However to make this allowance even bigger, so to speak, your partner would be allowed to take increase the purchase price by the amount of inflation that has occurred by the time he came to sell the shares.

If this is the tax you are referring to then your partner is not being penalised by buying shares in a company that has been taken over; anyone with shares faces this potential tax liability.

isasmurf

I think that the only way around it, is if the new company offered to replace the option to buy shares in the old company with an option to buy shares in the new company.

alice

...we understood about the capital gains if we sold the shares - the difference now is, because my partner is no longer an employee of the original company through actions outside of his control, he will have to pay income tax on the difference between the preferential price and the 'real' share price at the date he buys them. This may even take him into the 40% bracket so will make quite a difference to the 'gain'
Thanks so far