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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi, I had some company shares. The company was sold and i got

Customer Question

Hi, I had some company shares. The company was sold and i got a share payout, I am in the 40% tax bracket and am trying to work out what capital gains i will need to pay on my share money...

Thanks
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

Can you tell me how you acquired the shares please. Were they as a result of your participation in a share option scheme? Were they given to you as a bonus? Did you buy them on the open market?
Customer: replied 3 years ago.

Hi, I was on a management team that were given share options and then as part of the structure of the sale they were turned into ordinary shares. After 1 year post acquisition the old shareholders settled with the new buyers instead of doing a 3 year deal. As such our shares were part of this and we got paid a price per share and the money was transferred into our accounts according to how many shares we were given pre-acquisition.


 


 

Expert:  TonyTax replied 3 years ago.

Thanks.

Can you confirm the options were not a Save As You Earn Scheme? When you were given the share options, did they have a period which had to lapse before which you could exercise them? If so, what was it? What were the terms of the option scheme? Did the terms of the option scheme allow for a conversion of un-exercised options into ordinary shares in the company which bought your employing company? What was discussed at the time this happened and was professional advice sought? Did you have to wait for a year after the takeover before you could be bought out by the takeover company? Was this related to the terms of the option scheme, ie did you only have a year to wait before you would have been able to exercise the options?

 

Over what period of time did the grant of the options, their conversion into ordinary shares and their sale to the company which bought them occur?

Customer: replied 3 years ago.

Hi, from what i understand we had management share options, which we then had to sign away under the condition of the sale from being options. They were turned from options into shares which were linked to an earnout agreement over the course of three years. However the two companies agreed to stop the earnout at the end of year one and just settle on a figure and as such we were given a lump sum payout against our shares on the instruction we had to sort our own capital gains tax out as you would if you got a return on any shares... does that help and no i didnt get professional advice as it was all being managed through the lawyers of the company i worked for.

Expert:  TonyTax replied 3 years ago.
Thanks.

Can you confirm that you didn't part with any cash at all which you would have done had you exercised the options and that you were effectively paid the difference or thereabouts between the exercise price and the value of the shares. Were you still working for the company at the time of the payout?
Customer: replied 3 years ago.
Hi, i didnt part with any cash. I was working for the company that bought us as it was at the end of year one when the old company chairman negotiated with the new owners on a compromise to the three year earn out for all old company shareholders. They settled on a price per share which allowed both companies to walk away at end of year 1. I believe i just need to pay capital gains tax on the total i recieved less the 10600 allowance. If i recieved 40k and am high income bracket, what should i expect to pay in tax.
Expert:  TonyTax replied 3 years ago.

Thanks.

Yours is a very unusual situation.

As far as I can see the terms of the management share option scheme were compromised when your un-exercised share options were exchanged for actual shares which would have made it an unapproved (by HMRC) share scheme. The value of the shares given to you should have been subject to income tax at the time unless there was a restriction on their disposal (the earn out scheme may have done that).

As you appear to wich to disclose a capital gain, if you were a 40% taxpayer in the tax year that the shares were disposed of, then you will have a liability to CGT at 28% on the gain. The gain should strictly be the amount by which the payout exceeded the value of the shares when they were given to you by your employer. The reason for this is that you should have been subjected to income tax on the value of the shares when they were given to you. The amount on which you should have paid income tax would then be your "cost" for CGT purposes.

If you are happy to have a cost of £0 for the shares, your gain is £40,000. The taxable gain is £29,400 if the disposal occurred in 2012/13 so you will have a CGT liability of £8,232. That's on the basis that your income in 2012/13 excluding the share money was more than £42,475.

I hope this helps but let me know if you have any further questions.

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