Selling shares - any way of saving tax on this additional income?

weimaranermerlin

Hi there,

My husband owns shares and share options given to him by his company as a way of supplementing his income. We have decided to sell some shares, as well as share options in order to pay off some of our debts.
I am wondering now if there is any way of reducing the tax we pay on this "additional" income. My husband is already in the 40% tax bracket so all the money we make out of selling the shares will be taxed at 40% I assume. Is there any way reducing this?

Any suggestions welcome. Thanks a lot for your help in advance!

Sandra

sneekymum

The profit on selling shares is taxed as Capital Gains Tax (not Income Tax) - for which you have an annual exempt allowance - this year its £8500.

You can make £8,500 profit on the sale of those shares without incurring any tax. If its possible to stagger the sale so that you don't make more than the exempt amount and then sell some next tax year too then that would be better. Also don't forget that there is taper relief so that inflation is taken into account on the true value of those shares.

MJSW

The gains on the shares option exercise are likely to be subject to Income Tax rather than Capital Gains Tax, although it will depend to some extent on the type of share option scheme involved.

For the other shares, these would be subject to CGT as sneekymum has indicated. However the most imprtant tax saving on these is that they should qualify for Business Asset Taper Relief once they have been held for at least 2 years, as they are shares in his employer. Depending how long he has owned the shares, this would be up to 75%. The effective rate would be lower if the shares were acquired before 5 April 2000, since shares in quoted companies did not generally qualify as Business Assets before then, and the gain hasto be time apportioned between the two periods.

If the maximum 75% relief is available, this means he could make a capital gain of up to £34,000 without paying any CGT.

Pinkleylandii

Hi

As MJSW has stated, you could be looking at an income tax charge instead of a capital gains tax charge. You will need to establish what type of options your husband has. If it were a capital receipt, then as previously stated, your husband may well be entitled to 75% business asset taper relief. However, if your husband's potential capital gain exceeds say £34k and you yourself have not realised any gains in say the current tax year, it will be beneficial for him to transfer some shares to you prior to the eventual sale so that you can use your own £8,500 annual exemption. You will need to establish at the outset how many shares can be transferred without the gain attached to them exceeding the £8,500 exemption.

If we are talking about a substancial gain subject to CGT, by staggering the share disposals over a number of tax years, your husband could do this same inter spouse transfer exercise prior to each disposal to use both of your annual CGT exemptions each tax year.

Cheers

John

telly-addict

He can transfer shares to you with no capital gains tax to pay. You 'inherit' the history for taper relief purposes. Assuming you pay tax at a lower rate than your husband, when you sold the shares you would pay less tax overall. And if you have made no other disposals you have an unused annual exemption that will mean there could be no tax to pay at all.