Reinvesting stock in the company you work for

Samsonite1

Hi,

This is a new world to me, so forgive the silly questions and please correct my terminology if I get it wrong!

If I have been given stock options by my company and they have reached their targets - I can get cash or reinvest.

Regarding the reinvestment option, I want to know what the legal and tax implications are if a family member wants to gift me money to be invested. The investment would be mine, but the only difference is that I received the money as a gift and the intention was for me to invest for my future.

Firstly, is this allowed? I think it is because you can be gifted money and then do what you want with it?

Secondly, what are the tax implications? Do you pay income tax on the gift and then some kind of capital gains tax on the investment also? If that were the case, it would make more sense for them to do their own investment otherwise the amount of money would be double-taxed essentially.

Thanks,
S

kinger101

People are free to gift you money, but there may be inheritance tax due if the person who made the gift dies within 7 years of the transfer. In these cases, if the deceased's estate is liable to IHT, you may have to pay any tax due where no provision to do so has been made in the will.

As the the tax implications of the shares, your HR department should be able to give you some information about the scheme. Usually employee schemes are tax-efficient, and the shares can even be transferred to an ISA to shelter future gains.

https://www.gov.uk/tax-employee-share-schemes/company-share-option-plan

Aretnap

Indeed, gifts are not taxable. Anyone can gift you money if they're kind enough to do so, the money becomes yours with no tax to pay, and then you can do what you like with it - put it in the bank, buy a house, invest it in shares, or blow it on coke and hookers (OK, that last one may not be strictly legal, but not because the money was a gift).

The one exception to this rule is that if the person making the gift dies within the next 7 years, the gift (subject to some annual allowances) will be counted as part of their estate for inheritance tax purposes (essentially to stop people avoiding inheritance tax by giving away everything they own on their deathbeds). This is only a concern if their estate is likely to be large enough to be subject to inheritance tax of course - most people's estates aren't.

How the options themselves are treated for tax purposes depends on thee nature of your company's scheme - there are several versions with different tax implications.

Going forward, keeping the shares rather than selling them now means that the fortunes of your money will be tied to your employer's share price. Now is probably a good time to think about whether that's actually what you want. It's good practice as an investor not to have too great a share of your money in a single company. You run the risk of losing out badly if something unexpected happens to that company, and even the most semingly dependable blue chip companies (think Tesco, Lloyds, BP etc) can see their share prices plunge. The risk is even greater if it's a company that you happen to work for - if all your savings are in your own company's shares, watching it go belly up means losing your job and your savings at the same time! You could keep the benefits of having money in the stock market (better long term growth than cash in the bank, probably) at less risk by selling some or all of the shares, and investing the money in a number of companies instead, or better still a fund which spreads your investment over a large number of companies.