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CGT on EMI scheme shares
Options
adonis10
Posts: 1,810 Forumite
in Cutting tax
EMI share options issued 10 years ago, and then this year the company (employer) " will agree to buy the shares, and will make a loan to you to allow the transaction to be completed, and at the same time, the Company will buy the shares from you at an agreed valuation, as set out in the table below."
Employee buys 20 shares for £98.40/share, immediately sells to company for £1,000/share resulting in a payout of £18,032 (20 shares * (1000-98.4)).
I am told that entrepreneurs relief is not allowable so it looks like full CGT is payable. This is the only capital gain in 15/16, therefore gain of £18032 less CGT allowance of 11,100 = £6932. Add this to earnings of 14k (24,600 salary less 10,600 personal allowance) means that the taxable income is all within the basic rate band and as such the gain of £6932 is subject to 18% CGT of £1247.76.
Does this sound correct? If not, why not? Any other considerations?
Employee buys 20 shares for £98.40/share, immediately sells to company for £1,000/share resulting in a payout of £18,032 (20 shares * (1000-98.4)).
I am told that entrepreneurs relief is not allowable so it looks like full CGT is payable. This is the only capital gain in 15/16, therefore gain of £18032 less CGT allowance of 11,100 = £6932. Add this to earnings of 14k (24,600 salary less 10,600 personal allowance) means that the taxable income is all within the basic rate band and as such the gain of £6932 is subject to 18% CGT of £1247.76.
Does this sound correct? If not, why not? Any other considerations?
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Comments
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EMI share options issued 10 years ago, and then this year the company (employer) " will agree to buy the shares, and will make a loan to you to allow the transaction to be completed, and at the same time, the Company will buy the shares from you at an agreed valuation, as set out in the table below."
Employee buys 20 shares for £98.40/share, immediately sells to company for £1,000/share resulting in a payout of £18,032 (20 shares * (1000-98.4)).
I am told that entrepreneurs relief is not allowable so it looks like full CGT is payable. This is the only capital gain in 15/16, therefore gain of £18032 less CGT allowance of 11,100 = £6932. Add this to earnings of 14k (24,600 salary less 10,600 personal allowance) means that the taxable income is all within the basic rate band and as such the gain of £6932 is subject to 18% CGT of £1247.76.
Does this sound correct? If not, why not? Any other considerations?
1. When you say ten years ago, that's important. If you exercise more than ten years after grant then its all income tax on exercise. If the company is buying the shares back (see next point) then that is really, really important as you could end up paying income tax twice on the same amount. No, really. Twice on the same amount.
2. The entrepreneurs' relief point may be wrong if you are still an employee or director. The rules changed in 2013 so you might want to check that the advice is up to date. But it might be right if the company is really buying back its own shares. If it is (and not a trust or another shareholder) then the amount received in excess of your exercise price will (absent anyone else, like an EBT or subsidiary, paying anything up on the shares and assuming they are newly issued to you in a UK tax resident company) be taxed at dividend rates.
3. There are caveats about the EMI plan being operated properly, disqualifying events, notified to HMRC etc. If things have not been done properly, the gain on exercise could be subject to income tax.
4. There's also the question of valuation, if the shares are not worth £1,000 then you could expect to pay PAYE/NIC on the excess that you receive.
5. Your annual allowance is wrong (should be £11,100 for last year and this year).
6. Your 18% CGT rate is right for 2015/16 but wrong at the moment (would be 10%).
7. If you are married/have a civil partner, you may be able to transfer the beneficial ownership of (say) half the shares to your partner after exercise but before selling them and effectively get two lots of the annual exemption (assuming it really is CGT on disposal). But your company may not play ball with that.
8. Have you thought about exercising and keeping the shares (i.e. not selling them back for the £1,000 per share)? If the shares are going to be worth a fortune in a few years then why not? Assuming you can fund the exercise price and are happy to take the risk that they may be worth nothing. If dividends are paid on the shares then that can also mean keeping them is a good idea.
9. I've not got a calculator so am not going to check your maths.0 -
Standard Personal Allowance (income tax) is £11,000 for 2016-17.
https://www.gov.uk/income-tax-rates/current-rates-and-allowances
https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis
http://www.jonathanlea.net/2015/what-are-emi-option-schemes-and-how-do-they-work/0 -
1. When you say ten years ago, that's important. If you exercise more than ten years after grant then its all income tax on exercise. If the company is buying the shares back (see next point) then that is really, really important as you could end up paying income tax twice on the same amount. No, really. Twice on the same amount.
The transaction was completed within 10 years.2. The entrepreneurs' relief point may be wrong if you are still an employee or director. The rules changed in 2013 so you might want to check that the advice is up to date. But it might be right if the company is really buying back its own shares. If it is (and not a trust or another shareholder) then the amount received in excess of your exercise price will (absent anyone else, like an EBT or subsidiary, paying anything up on the shares and assuming they are newly issued to you in a UK tax resident company) be taxed at dividend rates.
Still an employee. Company bought back the shares.3. There are caveats about the EMI plan being operated properly, disqualifying events, notified to HMRC etc. If things have not been done properly, the gain on exercise could be subject to income tax.
What caveats? Any links to info?4. There's also the question of valuation, if the shares are not worth £1,000 then you could expect to pay PAYE/NIC on the excess that you receive.
How will this be determined?5. Your annual allowance is wrong (should be £11,100 for last year and this year).
I referred to £10,600 PA for income tax and £11,100 for CGT and the tax will surely be due for the 2015/16 tax year, which is why I used those figures.6. Your 18% CGT rate is right for 2015/16 but wrong at the moment (would be 10%).
Why would a 16/17 rate apply? Shares bought and sold in Jan 2016, so presumably 15/16 rates apply?7. If you are married/have a civil partner, you may be able to transfer the beneficial ownership of (say) half the shares to your partner after exercise but before selling them and effectively get two lots of the annual exemption (assuming it really is CGT on disposal). But your company may not play ball with that.
They're already sold.
They've already been sold.8. Have you thought about exercising and keeping the shares (i.e. not selling them back for the £1,000 per share)? If the shares are going to be worth a fortune in a few years then why not? Assuming you can fund the exercise price and are happy to take the risk that they may be worth nothing. If dividends are paid on the shares then that can also mean keeping them is a good idea.0 -
It would appear that 10% is applicable to to the entire profit with this particular scheme.
http://millconsultancy.co.uk/services/emi/?gclid=CL6EyI273dACFW217QodndsA7Q0 -
Keep_pedalling wrote: »It would appear that 10% is applicable to to the entire profit with this particular scheme.
http://millconsultancy.co.uk/services/emi/?gclid=CL6EyI273dACFW217QodndsA7Q
Interesting, however HMRC suggest that it is available on "shares you got through an Enterprise Management Incentive (EMI) scheme after 5 April 2013"
Given that the share options were granted in 2006, surely this does not apply?0 -
Interesting, however HMRC suggest that it is available on "shares you got through an Enterprise Management Incentive (EMI) scheme after 5 April 2013"
Given that the share options were granted in 2006, surely this does not apply?
However, the transaction was completed in 2016, i.e. The purchase by employee and subsequent sell back, therefore surely 10% applies?0
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