CGT or Income Tax on US Stock Options

dsgg10

When I started with my current company 7 years ago I was granted some stock @$X per share. Now the company is being partly bought out and the vested options are being bought at $Y. Should this Y-X amount be taxed as CGT or Income Tax?

EdSwippet

dsgg10 wrote: »

Should this Y-X amount be taxed as CGT or Income Tax?

Assuming this is an 'unapproved' stock options scheme for HMRC purposes -- and it likely will be, because US companies generally want to keep their entanglements with HMRC's tangled web of compliance to a minimum -- the gain will be treated as ordinary PAYE income, so both income tax and NIC to pay.

For example, from this paper:

There is no income tax charge on the grant of unapproved share options provided they are exercised within 10 years. ... On exercise of the option income tax will be payable on the difference between the option exercise price and the market value of the shares at the date of exercise. If the shares are “readily convertible assets” when the option is exercised (e.g. because the company is being sold), then PAYE must be operated and there will be national insurance contribution liability for the employee and the company on any option gain.

Notice in particular that there is an employer NIC payment required here too, but employers are able to pass on this employer NIC liability to employees. Some do, some don't. (Mine did :-( .).

Your employer should be able to tell you how your options scheme is set up, and from that, how tax will operate once your options are liquidated.