Cashing out share options

mrlizard

Not sure if this is the right subforum to ask this in, but it seemed like the best fit. If not, I'll close the thread.

Past few years I've been working for an American startup and I've accumulated a bunch of vested share options. The company I work for is in the process of being bought over by a larger competitor, and it's expected that the sale of my share options to the new parent company will go through in the next few weeks.

We've been told that the returns from selling our share options will be transferred to us in the form of an additional payroll run in the next couple of months. Our outsourced payroll company (ADP) is very US-centric and there's been issues in the past of them not being up to date with UK tax regulations.

If the share options selloff comes through as a bonus on top of my existing pay and is treated as PAYE income, is that the norm? I've been looking around the HMRC site and have seen schemes whereby such income can be tax-free up to a certain amount, but the company I work for hasn't signed up to any of those, and the whole area is really confusing for a wage-pleb like me.

If the money does get transferred to me as a bonus payroll subject to the standard tax rates, is there any recourse for me to get a tax rebate on it?

EdSwippet

mrlizard wrote: »

If the share options selloff comes through as a bonus on top of my existing pay and is treated as PAYE income, is that the norm? I've been looking around the HMRC site and have seen schemes whereby such income can be tax-free up to a certain amount, but the company I work for hasn't signed up to any of those, and the whole area is really confusing for a wage-pleb like me.

It's the norm. Unless your company has signed up to one of the UK's employee share option schemes -- and it's very unlikely that any US company would, much less a startup -- then the gains that you get from either exercising share options or for having them sold for you as part of a takeover is PAYE income. Tax and NI as if salary, then.

mrlizard wrote: »

If the money does get transferred to me as a bonus payroll subject to the standard tax rates, is there any recourse for me to get a tax rebate on it?

If your company over-withholds for UK tax via payroll then of course you can get that element back by filing an annual self-assessment return. If you mean can you somehow reduce your actual tax liability here, then the answer is almost certainly no. If you exercised and sold these options now, before takeover, the tax treatment would be the same.

The trick with stock options where you are certain (haha!) that the company's value will rise is to exercise early, take the income tax hit, and then wait for later capital gains. Many people have tried this in the past. A few may even have succeeded :-)

Personally, I've generally exercised and sold as and when options vest. A bird in the hand, and all that. Also, having a lot of money tied up in one's employer's stock is risky. If the company goes bust, not only do you lose your job but also a big chunk of cash. On the other hand (of course), a single large bet like this can pay off handsomely. If it pays off at all, that is.

mrlizard

Thank you for the info.