Share Options

Cashola

Hoping someone can help here
I've got share options from work which I can exercise on 16th May.
3000 share options, I can exercise for €2.36 and they're currently worth €4.50 (lets assume it stays on that for the purpose of the question.
I've never sold / bought shares before so I am a complete novice. But I am planning to sell them in May as soon as I can as I am planning to leave the job after that.
I earn £50k gross per year salary and get no other earnings, have no pension, nor any other money coming in.
After I sell them and pay the share dealer their % - will I also have to pay tax on any profit I make from the shares?

*confused!* I've read lots of differing info on the internet.

taxing

The short answer is Yes, probably.

You need to tell us more.

What sort of share option scheme are you in?
Is this a UK company?
Were you working in the UK when the share options were granted to you?
Did you pay anything for the option?
Is the company recognised on the stock exchange; or about to float; or subject of a takeover - in other words, will it be easy to sell the shares - is there a ready market for them?

If these are approved share options (that is in a tax favoured scheme) you probably won't be paying income tax and national insurance on your 'gain element' (that is the bit that is the difference between how much you buy them for and the 'market value' of them on the day you exercise the options) BUT you will pay capital gains tax at 28% (because your income will use up the basic rate band so you go in to the top rate for CGT) on the gain (the 'gain element' mentioned above).

If it is an unapproved scheme - you will need to pay income tax on the 'gain' as HMRC say these are really 'earnings' and they will be having some income tax thank you very much....If the shares can 'easily be sold' (cause the company is listed, or up for'sale' etc) you will have 'readily convertible assets' so the 'gain you make (see above) will be taxed under PAYE (through payroll) AND ALL your pay for that month can be taken here if the tax is that much. If you still owe 'tax' above your month's pay, then the employer pays it over to HMRC, but you then have to make arrangements to pay it back to the employer (usually from the sale of the shares).

If you have to pay income tax on the exercise of share options, and then sell the shares straight away and at the same value as these were on the day you 'bought' them (by exercising your options), there is unlikely to be any CGT (as the full gain has already been taxed under PAYE).

If you did keep the shares for a while, and the value continued to rise then the 'bit' above that which you suffered PAYE on would be subject to capital gains tax (probably at 28% in the tax year you sell them, assuming rates stay the same (Budget tomorrow!!!) and also you stay at about the same level of earnings (or get more...).

Note also, that the employer has a liability to employers national insurance when the 'gain' goes through payroll and 'he' may be quite 'keen' to pass that on to you (it is written in to some schemes that part of the deal is you pay the employers national insurance, too). If this happens (and it's legal so it might), then the amount you need to pay becomes part of what the 'cost' is for capital gains tax.

Not an easy area and most employers give chapter and verse paperwork, and help, and guidance to their staff because it is all so 'tricky'.

Regards.