Share Options & CGT

setmefree2

Hi

Lucky Mr SMF2 has been given to some share options for his (American ) Co. He has been told that if he BUYS them then sells them on that this is subject to CGT (and avoids income tax at 40%)

Does he have to hold the shares for ant time period or can he just sell them straight on?

Thanks

SMF2

jamesd

That's wrong as I understand it, on several fronts:

1. Unless it is part of one of the official UK share schemes (and exercised after holding for the required period of years) the difference between market value at exercise time and exercise cost of the option is treated as taxable salary. He has no option that will let him treat it as CGT.
2. The employer operating PAYE is responsible for deducting normal income tax, employee and employer NI. Not just income tax.
3. Once he has exercised the options he can keep the shares and the purchase price for future CGT calculations will be the market value at the time the options were exercised.

The employer is required to get that done within six months or the employer is failing to operate PAYE correctly. If it's not done within six months the employee is liable for the tax personally, as usual.

Also note that if they are being sold by a US broker (rather than through salary) there will be a US tax form to send to the broker, otherwise they will deduct US tax before paying the profits - required for them to do this unless they have the form on file. And this doesn't avoid the salary requirement, it's just a bit of admin that he may face in addition to that if his employer hasn't got their act together for UK tax consequences.

Declare to HMRC and let them sort out the mess if his employer isn't handling this as salary. Be prepared, the option scheme rules probably also have a clause that says that he's responsible for reimbursing the company for all taxes - so it may well be more than 50% tax for him to pay on the gain.

If he's not a PAYE employee in the UK he'll have to handle it according to whatever status he has. Do be sure to tell HMRC as much about this as possible so that there's no indication at all of concealment.

I'm currently dealing with something similar myself.