Share Options

Wondergull · Oct 31, 2013

Does anyone know about share options, more specifically the tax implications?

I have been given some share options at work at a fixed price which is heavily discounted. These shares will vest in the new year when the company is sold and I will make a small profit.

My question is will this profit be subject to personal tax and NI or capital gains tax? I am trying to get an idea of what I can expect to receive and then look for the most tax efficient way to take the money.

Any advice on the subject would be much appreciated.

Thanks

WG

Bozza · Oct 31, 2013

Certainly taxable.

I'm pretty sure mine went through payroll so were subject to tax and NI (if you are not above the max NI threshold), not Capital Gains.

Alex Alex Dawson oo! oo! · Oct 31, 2013

Depends whether the share option scheme is approved or unapproved (under HMRC rules).

If it's an approved scheme then any gain when you sell the shares will be subject to CGT but you have an annual allowance (currently £10,900 I think) so provided you don't exceed this then you don't have to declare anything on your tax return.
If it's unapproved then any gain is treated as income so is subject to NI and income tax. The tax (for my wife anyway) now seems to get automatically deducted at 50% and she has to claim a rebate from HMRC.

Goldstone1976 · Oct 31, 2013

This is an area I have a lot of experience in (there had to be one eventually!), having set up 5 schemes over the last few years in different companies. Share options are not necessarily taxable. Many companies will set up an "Approved" (by HMRC) scheme for their employees, whereby, providing the total amount of paper profit you made at the time of option grant (i.e. the difference between the market value of the shares at time of grant minus the option purchase price, all multiplied by the number of options you were granted) is less than £30k, and also providing you've held the options for, typically, but not always, more than 3 years, any profit you then make on sale of the shares is tax and NI free.

There are a number of factors to consider:

Were your options granted under an Approved or Unapproved scheme?
What was the paper profit when the options were granted? To know this, you have to know...
What was the "market" price at that time? This is easy if your employer is listed; harder if it isn't.

Etc etc.

There will be a set of Scheme rules, which you should have been given at the time of grant. If you weren't, of if you've lost them, HR or the FD will have a copy.

I'd talk to HR/Finance if I were you. Given that options crosses both departments, you might need to talk to both.

I'm more than happy to help if you want to PM me, but I'd need to see lots of documents if I'm to provide more than generic info.

Short answer: it depends.

Wondergull · Oct 31, 2013

Goldstone1976 said:
This is an area I have a lot of experience in (there had to be one eventually!), having set up 5 schemes over the last few years in different companies. Share options are not necessarily taxable. Many companies will set up an "Approved" (by HMRC) scheme for their employees, whereby, providing the total amount of paper profit you made at the time of option grant (i.e. the difference between the market value of the shares at time of grant minus the option purchase price, all multiplied by the number of options you were granted) is less than £30k, and also providing you've held the options for, typically, but not always, more than 3 years, any profit you then make on sale of the shares is tax and NI free.

There are a number of factors to consider:

Were your options granted under an Approved or Unapproved scheme?
What was the paper profit when the options were granted? To know this, you have to know...
What was the "market" price at that time? This is easy if your employer is listed; harder if it isn't.

Etc etc.

There will be a set of Scheme rules, which you should have been given at the time of grant. If you weren't, of if you've lost them, HR or the FD will have a copy.

I'd talk to HR/Finance if I were you. Given that options crosses both departments, you might need to talk to both.

I'm more than happy to help if you want to PM me, but I'd need to see lots of documents if I'm to provide more than generic info.

Short answer: it depends.

NSC never fails to deliver!

Thanks all for the advice offered so far - a few more details that may help are...

I was given the options last week at an exercise price of £1
It isnt a listed company

Flex Your Head · Oct 31, 2013

The key thing here is the HMRC status of the plan - Approved or Unapproved. As mentioned above, if you sell the shares directly from an Approved plan, then there is no tax payable. However, if you transfer the shares out of the plan and in to a share certificate (or a dematerialised alternative) and then sell them at a a later date, they will be subject to the CGT rules.

If you transfer your shares out of an Unapproved plan, you get the double whammy of tax and NI upon exercise, plus a potential CGT liability when you finally sell the shares.

Is your plan administered in-house, or via one of the big 3 administrators; Equiniti, Capita or Computershare?

Goldstone1976 · Oct 31, 2013

Wondergull said:
NSC never fails to deliver!

Thanks all for the advice offered so far - a few more details that may help are...

I was given the options last week at an exercise price of £1
It isnt a listed company

From what you've said, and making some hopfully reasonable assumptions, I would guess that your options are in an Unapproved scheme (small employers are less likely to go to the hassle and cost of setting up an Approved scheme). Also, even if the Scheme is Approved, you won't have met the minimum time period (typically 3 years) for any profit to be tax free.

If the scheme is Unapproved, any profit you make will be treated by HMRC as taxable income, just like salary/wages.

Without seeing the documents, I can't give advice, so please don't take my posts as anything more than generic advice! And certainly don't do any tax planning on the basis of what I've said!

Again, have a chat to HR/finance as a starting point. Tbh, I wouldnt bother doing that until closer to the time the company is sold, since, until it is, it's all hypothetical anyway....

Goldstone1976 · Oct 31, 2013

Flex Your Head said:
The key thing here is the HMRC status of the plan - Approved or Unapproved. As mentioned above, if you sell the shares directly from an Approved plan, then there is no tax payable. However, if you transfer the shares out of the plan and in to a share certificate (or a dematerialised alternative) and then sell them at a a later date, they will be subject to the CGT rules.

If you transfer your shares out of an Unapproved plan, you get the double whammy of tax and NI upon exercise, plus a potential CGT liability when you finally sell the shares.

Is your plan administered in-house, or via one of the big 3 administrators; Equiniti, Capita or Computershare?

Yep, but he's only just been granted the options and is expecting to exercise and sell next year. He wont meet the minimum time period for Approved options to be tax-free....

BlockDpete · Oct 31, 2013

Wondergull, wouldn't your employer be able to tell you this.

I've been given free Royal Mail shares, as I'm a member of staff. Its an approved HMRC plan, so if I keep them for 5 years, I can sell them tax free.

I can't sell them at all for 3 years.

Scoffers · Oct 31, 2013

I've been through this too with the added complication that I worked for a privately owned US company.

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