Tax on US share options

Primrose

I'm a retired basic rate taxpayer who doesn't have to fill in a tax return. Before too long I will have to realise some stock options for a company I used to work for which will probably realise about £5000 after exchange rate conversion. As this falls below the annual Capital Gains limit of £9600, will I have to declare these for tax or do they have to be declared anyway?

roger_c

Is the £5,000 the amount you will receive (called proceeds) or the gain (money received less cost)? If it is the proceeds then it is unlikey to require to be declared as it is below the annual exemption of £10,100 for 2009/10 and below the capital gains reporting limits of £40,400.

Pumpkinface_2

It was my understanding that this will be taxed as income, not a capital gain. My husband recently exercised and immediately sold some options and his company deducted income tax.

Simran

what do you mean by "realise some stock options" - do you mean exercise the options (in which case there may be an income tax charge) or sold the shares which you acquired from a prior exercise of options (in which case there may be CGT subject to exempt amounts etc)

Primrose

I'm going to exercise the options. Don't actually own the shares.

BoGoF

Exercising a share option will make any profit liable to income tax not capital gains tax so the exemption is not relevant. You will be liable to income tax on the difference between your option price and the market value at the time of exercise. As I understand it US witholding tax will likely be applied.

mirwin

This is a very interesting thread as I'm in a similar situation.
I recently got made redundant from a US software company and was forced to sell all my 18,000 stock options that were generously granted to me when I joined the company in April 02.

The price at the grant was $10.87 and I recently sold all 18,000 at $17.30, resulting in a tidy gain of $115,740.

I realise I need to find out if this was an Inland Revenue Approved Scheme, but my question is regarding as the original option grant was over £30,000, (the limit set by the Inland Revenue for approved stock options scheme), will I only pay Capital Gains tax on the $115,740 gain, or will I be subject to my higher rate income tax on teh whole lot? Or can the first £30,000 of the original stock grant be subject to CGT, while the remainder is subject to higher rate Income tax? Thanks in advance

Pumpkinface_2

Ignoring the impact of approved schemes for the moment, again I believe it is income tax not CGT that you need to consider.

CGT would come into it if you had bought the shares previously, held them for a while and then sold.

canadiangirl78

I agree, income tax will be payable on the whole lot, CGT will only apply if you hold the shares after exercise and they rise in value. A same day sale will just result in an income tax charge.

It is highly unlikely that a US scheme would be an approved scheme for UK tax purposes, they do not usually conform to UK rules unless the company has set up an approved sub-plan.

If any US taxes are withheld you can claim a credit for these on your tax return.