Avoid or pay later tax due on exercise of employee share options

kaboo

Dear forum members,
Need some help/advice on how I can avoid or pay it later, if either is possible, the tax that becomes due when I exercise my available share options. 

I have been employed in this company, that was a start up, for several years and have accrued a few share options. As the company is going through some really hard time now and there is a looming restructuring, I am looking to leave and get a new job. Therefore I have to exercise the available options now. The shares are not really worth much at the moment and if I exercise and sell then I am likely to get ~£2k after paying tax and fees. I don't desperately need this money at the moment and I think there is potential to gain more in future if I keep the shares for now and sell them in 4-5 years time. Therefore I am looking to exercise and hold. These are zero/low cost options - negligible purchase cost.

So, as far as I understand, when I exercise, income tax (emergency rate of 45% which I will have to claim back so eventually would be a lower %) + NIC (2%) + employer's NIC(13.8%)  becomes due on the total value of share options that I have exercised - because HMRC sees this as a gain. I will have to pay ~£8.5k in taxes plus fees, which I dont have at the moment. If I sell a portion of the shares to cover the taxes of the remaining portion that I would hold, then I will loose like around ~80% of the shares.

Is there a way to avoid paying this tax now? I would not mind paying it when I sell the shares and make a gain. Is there a way to exercise and keep the shares for now, sell in 4-5 years time, and pay tax on the gain then? 

TIA, cheers.

sausage_time

Unless they are part of a Company Share Option Plan, you will need to pay tax/NIC on the difference between the market prices and the option price (NB not the total value) within 90 days of exercise.  This is treated as income, not a gain.  From your numbers, sounds like the current price is not much higher than the option price, and I'm guessing most of the "fees" are actually buying the shares at the option price?  Outside a CSOP there is no escape that I am aware of.

kaboo

sausage_time said:

Unless they are part of a Company Share Option Plan, you will need to pay tax/NIC on the difference between the market prices and the option price (NB not the total value) within 90 days of exercise.  This is treated as income, not a gain.  From your numbers, sounds like the current price is not much higher than the option price, and I'm guessing most of the "fees" are actually buying the shares at the option price?  Outside a CSOP there is no escape that I am aware of.

Thank you. These are not CSOPs. Exercise price is 0.01p, and current share price is around 30p. If I exercise and sell total comes out to be around 11k, of which more than 7k will go in taxes and NIC, 1.8k is roughly brokerage fees and commission. So what I will get is just over 2k. If I sell a portion to cover taxes of the remaining then it will cost me 80% of the shares. Wish there was a way to pay taxed later when I would sell these options.

sausage_time

Brokerage and fees seem excessive to me.  I presume you are confident about those numbers?  I'm with a US company and those fees are negligible in my case.  Also 7k (out of 11k) for tax and NIC seems too high?  That's nearly 64%?a

kaboo

sausage_time said:

Brokerage and fees seem excessive to me.  I presume you are confident about those numbers?  I'm with a US company and those fees are negligible in my case.  Also 7k (out of 11k) for tax and NIC seems too high?  That's nearly 64%?a

I have done the exercise now, got the shares. Can these be transferred to an ISA?

uknick

Transfer Shares into an ISA - ISA.co.uk