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Employee Share Incentive Plan... Feeling ripped off, is this Right??
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It's my observation over the years that when a poster objects to being "ripped off" he almost always has a feeble case.Free the dunston one next time too.12
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Thank you for all the replies, I suppose it's good to know that what has occurred in this case is at least technically ''correct'' if to my mind still not morally or ethically fair.
It's effectively just a form of stealth CGT that only applies to people taking part in these schemes who for whatever unexpected reasons aren't able to remain with the employer and hold the shares for the required period of time to negate the tax liability on them.
It might have been a bit fairer if there was at least an option where even though I'm leaving the employer the shares can remain untouched in the scheme administrators account for the full period instead of me being forced to remove them and pay this stealth CGT.
Out of interest I wonder in the same situation if the shares had crashed and ended up being worth next to nothing would the tax liability still be based on the value of those worthless shares?... Or would that liability then magically revert back to being the £500 that I avoided paying on my earnings when purchasing them instead?1 -
kidmugsy said:It's my observation over the years that when a poster objects to being "ripped off" he almost always has a feeble case.1
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jacko74 said:Out of interest I wonder in the same situation if the shares had crashed and ended up being worth next to nothing would the tax liability still be based on the value of those worthless shares?... Or would that liability then magically revert back to being the £500 that I avoided paying on my earnings when purchasing them instead?
- If you hold for less than three years, the "relevant amount" for tax purposes is the market value on the exit date, whether it is lower or higher than the cost. [So, in the scenario you describe, it wouldn't revert back it would still be the market value.]
- If you hold for over three years but less than five years, the "relevant amount" is whichever is lower, market value on the exit date or the cost (market value at acquisition date for free shares/matching shares). [So, in the scenario you describe, it would be the market value if that were lower than cost.]
- If you hold for over five years, no income tax or NICs to pay.
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I dont get why the OP thinks it is morally or ethically fair.
They had a chance to buy shares pre tax through a company share save scheme as I read it, that had a minimum term of 3 years, it sounds a really good deal. They knew the terms they signed up for, and did not meet the terms on their part, so effectively have a termination policy to follow through.
The £23 a week they say is £1800 over the term that avoided both National Insurance(say 10%) and Tax at 20%. If they remained at the company, they could sell them after 3 years, Tax and NI free.
The £1800 paid without Tax or NI is now worth £8100. A 350% gain. They then need to pay £2100 in taxes, so a gain of £4200 overall - something to celebrate!
If the OP bought the shares normally through a broker, then they probably would only have had £1250 cash say after tax and NI, probably slightly less. A 350% gain on this amount would be about £4300.
You have done well these past 18 months, and should not feel ripped off for a roughly 350% gain on your investment either way as these were the terms of the deal which are more than fair.
Its not a stealth CGT in any shape or form. All they have done is written off the tax/NI free incentive by leaving the company early before the terms of the 'bonus' lets call this, have been met.6 -
TheAble said:I guess these are the rules but I do sympathise with the op. If the shares had been bought using taxed income, whether in an ISA or not, they wouldn't be facing an additional £1600 liability right now. @moneysavinghero you seem to be missing the point a bit.0
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jacko74 said:Thank you for all the replies, I suppose it's good to know that what has occurred in this case is at least technically ''correct'' if to my mind still not morally or ethically fair.If you are unhappy, you should be put back into the position you would have been in if you hadn't joined the scheme. That means the £1,800 you paid into the scheme should have been paid back to you minus normal income tax and NI (e.g. 32%, so net £1,224)Instead, you've been allowed to walk away with £8,100 gross, £6,000 net.I think you should demand they take the difference back (deduct £4,776 from the net amount you've received) for the benefit of surviving members of the scheme.7
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I actually do have some sympathy for OP, they have suffered a tax bill they didn't expect (albeit absolutely correctly, according to the legislation) and who wouldn't feel inclined to vent.The best to get your own back on the tax man, if your age makes you eligible to open one, is to pay the net proceeds of the sale into a stocks & shares LISA, up to the full 4k allowance.Alternatively, if the new employer supports salary sacrifice for pension contributions, arrange to sacrifice some salary in exchange for a one off extra pension contributions.2
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Isn't the issue that the share purchase is basically an employee benefit which is therefore taxable? That it is a benefit is waived in part at 3 years and fully at 5. Unless as mentioned depending on it not being the individual's choice to leave the company (i.e. redundancy or death) or retirement. It's one of the reasons that share purchase is less popular than a share save scheme where the rules are less complicated so easier for individuals to understand.I’m a Forum Ambassador and I support the Forum Team on Debt Free Wannabe, Old Style Money Saving and Pensions boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.
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