Capital gains tax mitigation

bigadaj

I'm in the process of taking voluntary redundancy. I accepted a decent offer which gives me around two years net pay in total including PILON, enhanced redundancy and payout of shares and options.

I'm waiting to see how I go with finding new employment over the next few weeks and months but am just considering options in reducing tax.

There will be a few thousand of higher rate tax which I would address by additional pension payments but I'm unsure of what I could do with the capital gains. I'm looking at vct investment but initial research suggests that cgt relief is only on the specific investment, if anyone else has suggestions I'd be very grateful to hear them.

I would also consider making sufficient pension payments to fall well below higher rate levels with commensurate reduction in cgt liability dropping from 28% to 18%. The capital gain will be around £50k so looking at around £10k of cgt liability.

jimmo

I am really struggling to understand your question and how much you already know about tax.

As a general principle the first £30k of a redundancy payout is tax free but there are circumstances where PILON can be counted as part of the redundancy package qualifying for the £30k exemption, and circumstances where PILON is counted as taxable earnings.

Shares and options are different things. If you have shares you own them and it is up to you to decide whether to keep them or sell them so, if tax saving is your goal it could be wiser to retain your shares for the time being.

Options are normally capital assets, similar to shares, but if the options arise from an approved scheme there is significant danger that your redundancy will disqualify you from the Income Tax relief available to approved schemes and, by cashing in your options on redundancy, you will incur an Income Tax charge, rather than a CGT charge.

As ever on the tax forum, the devil is in the detail and I am afraid the details you have shared so far are not enough.

bigadaj

Fair enough, it's always difficult to explain fully, hopefully I can put more contact into the question.

The company I work for is private, so not listed, and so as a condition of leaving the company then the company insists on purchasing the shares. This also applies to options which are now exercised by my option for voluntary redundancy. The shares and options were mainly issued under an EMI scheme with a small percentage issued under a CSoP scheme. I'm being taxed on the difference between the option price and the current agreed HMRC valuation. I'm currently having a disagreement with our hr on tax on the unvested options under the CSoP scheme but that is only for a few hundred pounds so not too hung up on it.

I understand the queries raised but to be fair I did raise this on the tax board rather than the employment board to focus on the cgt question. My query is primarily what options I might have to mitigate cgt from share sales, as I have no option but to realise this gain on terminating my employment.

Laurajo_2

I'd be wary of using EIS or VCT investments to defer the capital gains tax, you would have to invest the full amount of the gain to fully defer it (less your annual exemption) and of course, this is only deferring the gain, which will be crystallised when the EIS/VCT investment is disposed of.....and be chargeable at the rate of cgt at that time (which could be higher)....

On the other hand, you do get a 30 percent of the cost invested back as a tax credit....but you would need to go through this carefully with an IFA as they are high risk (hence all the tax perks) and not for the faint hearted.

Do you hold any other shares in other companies that can be disposed of, if they are at a loss and unlikely to recover? You would be able to offset the loss against the chargeable gain.

Have you looked into entrepenuers relief? This would only be an option if you held more than 5 PC of the shares and voting rights of the company, which is probably unlikely, but thought it worth a mention. This would reduce your cgt rate to 10 PC.

Is it a share incentive plan? There may be a possibility of rollover relief if you purchase an asset chargeable to cgt which would again defer the gain until you sold the second asset.

bigadaj

Thanks for the reply, I realise the point about these investments being high risk, though had thought that eis scheme se weren't now available.

I accept the point about the deferment, and the risk in future liability, though these schemes are designed to spread risk between a range of investments and so whilst some element will fail then others might grow hugely.

I don't have any insheltered npand uncrystallised investment, maybe this is the time to take a punt on some small oil and mining or tech shares to effectively reduce my risk!

Entrepreneurs relief won't apply unfortunately, it is a share incentive plan so I need to have a look at options for rollover relief.

Thanks

Laurajo_2

I think it's called SEIS now, although I believe EIS is still available.