Excercising stock options - advice needed

rockpeblar

My company gave me some stock options in 2002 which allowed me to buy some company shares at a preferential rate. The options could not be excercised for the first three years but in December '05 I decided to excercise my options and take the money. This is now in a dollar account waiting for a better exchange rate.

Is this money liable for income tax or capital gains tax ?

Cook_County

1. Are these approved options?
2. Did the employer withhold PAYE when you exercised?

jonesMUFCforever

Normally share options have to be kept for 5 years to be totally free of tax and NI.
Some schemes will let you cash them after 3 but you will be liable for tax and NI on proceeds if as previous poster has indicated that no tax was deducted when you excercised your option.
Capital Gains will depend on your own circumstance - you have an allowance of around £8500 - so any gain would have to be more than this before any CGT may be payable.

rockpeblar

Not sure what you mean by approved options.
These options were awarded in 2002 but had no value until they could be exercised after 3 years. Since I am leaving the company I had to exercise my options. I am still being paid by this existing company until end of January when I will leave them to start a new job. No salary has been witheld during this period.
The total value of monies that I have got from these options is $10.5k.
I was told that they would fall into the capital gains tax area since the options were worthless when I was first given them.

jonesMUFCforever

rockpeblar wrote:

Not sure what you mean by approved options.
These options were awarded in 2002 but had no value until they could be exercised after 3 years. Since I am leaving the company I had to exercise my options. I am still being paid by this existing company until end of January when I will leave them to start a new job. No salary has been witheld during this period.
The total value of monies that I have got from these options is $10.5k.
I was told that they would fall into the capital gains tax area since the options were worthless when I was first given them.

Would that be 10500 US Dollars?
If so that is approx £6600. Unless you have made other gains to take you over £8500 this tax year then you do not become liable for Capital Gains.
You will have to refer back to scheme terms and conditions to see if income tax and NI will be charged on the proceeds.

Big_Alfie_2

This thread is really helpful. I have been given Share Options each year by my (US based) company over several years - I live in the UK. All have reached their 'Exercisable Date'. All now have some value as the share price has increased versus the 'Grant Value'. I would like to realise these options in a way that will, ideally, avoid Capital Gains Tax. If I 'Exercise' no more than £8,500's worth in any tax year, will this be the way to avoid CGT?

Cook_County

Dear Alfie

No - the earnings are treated as employment income subject to income tax and NIC because they derive from employment - UNLESS they were granted under a UK approved scheme.

I have no reason to think that the same rationale does not apply to the original question.

The rules that ejones999 refer to are not relevant for unapproved plans.

jonesMUFCforever

Cook_County wrote:

Dear Alfie

No - the earnings are treated as employment income subject to income tax and NIC because they derive from employment - UNLESS they were granted under a UK approved scheme.

I have no reason to think that the same rationale does not apply to the original question.

The rules that ejones999 refer to are not relevant for unapproved plans.

You still have the £8000 tax free figure to play with; So if you do not make more than this from any other asset gain then yes you will avoid capital gains tax, if you are registered in the UK for tax purposes.
If you are not or are leaving the country then you need to get advise from a tax professional.

Big_Alfie_2

Thanks. My key learning from this is that if a realise my options in lots of no more than £8,000 per year, I will not be subject to tax.