Capital Gains Tax - Help!

big_leon

Dear All,
Hopefully you can offer some guidance on my situation...

Basically work offered a scheme where you invest £250 / month in company shares for three years. At the end of the period you can either take the £250 x 36 + 4% interest OR the sell the shares.

The share price has risen from $35 to $120 / share. Also the company has been purchased which means the shares have been automatically sold.

So my questions is, is there any way to avoid/mitigate capital gains tax on approx £35,000?

(My cash ISA is currently maxed for the year and I'm not married so I cannot transfer funds to a partner)

Can I put some in a stocks and shares ISA?

Thanks for any suggestions people may have.

Leon

zygurat789

Is that £35,000 the proceeds of the sale or the gain from the sale?
The first £10,600 of the gain is exempt from tax and tax is charged at either 18% if you are a basic rate taxpayer or 28% if you pay tax at 40%
The gain is calculated on the transaction which you say is already complete so anything you do now will not affect this. You could have put these shares in an ISA.
Hey, look on the bright side, both you and your country are now better off thanks to this takeover.

CTA_2

big_leon wrote: »

Dear All,
Hopefully you can offer some guidance on my situation...

Basically work offered a scheme where you invest £250 / month in company shares for three years. At the end of the period you can either take the £250 x 36 + 4% interest OR the sell the shares.

The share price has risen from $35 to $120 / share. Also the company has been purchased which means the shares have been automatically sold.

So my questions is, is there any way to avoid/mitigate capital gains tax on approx £35,000?

(My cash ISA is currently maxed for the year and I'm not married so I cannot transfer funds to a partner)

Can I put some in a stocks and shares ISA?

Thanks for any suggestions people may have.

Leon

is this an approved or unapproved share scheme? your employer will know the answer.

big_leon

CTA wrote: »

is this an approved or unapproved share scheme? your employer will know the answer.

CTA - Thanks for the reply. Can you explain the difference between the two?

Edit: What I should have added is that it was a Save As You Earn (SAYE) earn scheme.

What I had hoped is that I could do the following:

£250 x 36 = £9000 (original investment)
£35,000 = (total share selling price)

So: £35K - £9k - £10,600 = £15400

Put £5,640 into a stocks and shares ISA

Remaining £9760 I pay 18% Capital Gains TAX.

However I see this may not be the case....

CTA_2

big_leon wrote: »

CTA - Thanks for the reply. Can you explain the difference between the two?

In a nutshell, approved schemes carry advantageous tax consequences (and typically you cannot purchase these shares for less than market value).

A big difference in the way these two schemes operate and before I offer advice on one operates, it would save me a lot of effort if you told me which scheme you are part of.

pjclar02

CTA wrote: »

A big difference in the way these two schemes operate and before I offer advice on one operates, it would save me a lot of effort if you told me which scheme you are part of.

Its a SAYE scheme

big_leon

pjclar02 wrote:

Its a SAYE scheme

Thanks pjclar02 - yes it is a SAYE scheme (apologies I didn't realise that was the distinction you were after).

jamesd

A Sharesave scheme is an approved scheme. If it had been an unapproved scheme instead the whole gain (sale price less buy price, also less dealing costs) would have been taxed under PAYE, complete with national insurance and income tax to pay.

Approved schemes have the gain treated under the far more favourable capital gains tax approach so you get your usual CGT allowance to deduct from the profit before tax. Then you pay tax at the appropriate CGT rate for your income level.

You could perhaps avoid the CGT by using an Enterprise Investment Scheme but this is not usually suitable for most people because of the high investment risk normally involved.

It may not have been necessary to exercise and sell the shares just due to a takeover. A scheme is allowed to roll over the options into another scheme for the new company if that is desired. This is covered on page 17 of this document.

Under a normal SAYE maturity you can transfer the shares into an ISA but their value is the value at the time of exercise, not the lower purchase price, so this doesn't avoid CGT.

John_Pierpoint

The roll over option may not apply due to the the rules of the original scheme, the take over company not being European, etc, etc.
If the employees kick up enough of a fuss some compensation might be offered (See the British Gas scheme of about 15 years ago)
Personally I was left looking at a modest investment return in a save as you earn account with a Building Society and no shares.
[I would much rather have instantly qualified for the shares and been able to sell then to the take over company for a premium or roll them over into loan stock to sell at my leisure - that is what happened to the shares that had already been issued to me in previous years]

Anybody know if such employee share schemes can be used as part of a "poison pill" takeover defence?

big_leon

jamesd wrote: »

You could perhaps avoid the CGT by using an Enterprise Investment Scheme but this is not usually suitable for most people because of the high investment risk normally involved.

JamesD, thank you for the reply. Most useful.

I'm now looking into the Enterprise Investment Scheme (although I couldn't find anything specific about it on MSE).

I'll do a forum search to see whether anyone else has been down this path.

Thanks again.

big_leon

(Sorry for back to back posting - couldn't edit my post)

Also, is anyone aware of any decent companies that facilitate the enterprise Investment Scheme?