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bigduckontax
bigduckontax, Accountant
Category: Tax
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Whats the most tax efficient way for me to exercise my stock

Customer Question

What's the most tax efficient way for me to exercise my stock options?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

Before I can help though I need to know exactly what form these stock options take, please advise? Without this data the answer is a long as the proverbial piece of string!
Customer: replied 2 years ago.

Hi Keith, not sure what detail you need - does this help? Thanks, Cressida


 


Expert:  bigduckontax replied 2 years ago.
Yes, thank you Cressida, it does. Please give me a few moments to draft an answer.
Expert:  bigduckontax replied 2 years ago.
Sorry for that, Cressida. These type options are taxable at the point they vest. They are liable to Income Tax (IT) and possibly NI contributions, if appropriate. Thus for tax planning purposes you should arrange vesting in tax years where your exposure to IT is the lowest. I see you have much latitude in the time frames in which to act. If your income is substantial it may well be advisable to employ a local, trusted account to manage the tax planning.
Customer: replied 2 years ago.

Hi Keith, sorry i know this, my question is what is the most tax efficient way for me to exercise all my options if I wanted to exercise all the ones I can now? I understood type A are liable to CGT but I get £10.5K per tax year tax free. Are the type A ones then liable to CGT after this and how much is this? Is the CGT taxed at purchase or do i have to do a tax return? And if I exercise the type B ones now when and how do I get taxed? I am a higher rate tax payer for information.

Expert:  bigduckontax replied 2 years ago.
The type A options liable to CGT should be disposed of over a number of years to only utilise the free annual allowance of 10.9K this tax year, 11.1K next. CGT is calculated when you make your self assessment return which you will have to do this year and in future years.

The Type A and Type B stocks both seem to be non-qualified stock options so the tax treatment is the same for both types.
Customer: replied 2 years ago.

Hi Keith,


 


Sorry you haven't answered my question of "if I want to exercise everything now what is the most efficient way to do this?"


 


Also I don't understand what "The Type A and Type B stocks both seem to be non-qualified stock options so the tax treatment is the same for both types." means - are you saying for all these shares they are liable to income tax and CGT? I was told by work that type A were liable to CGT but type B were subject to IT only.


 


Thanks, Cressida


 

Expert:  bigduckontax replied 2 years ago.
I can only go on the data you posted Cressida. This shows both A and B as non-qualified stock options. On that basis they will be treated the same. You must enquire of your employers as to why they think the tax treatment differs.

As for exercising everything then you will be liable in the year of exercise and there is no tax planning around that. Having said that there are but 5 days left in the 13/14 tax year so a double shuffle over next week could reduce your tax liability considerably.
Customer: replied 2 years ago.

Hi Keith, so are you saying that on all of them I'd have to pay CGT and income tax? and potentially NI? Thanks, Cressida

Expert:  bigduckontax replied 2 years ago.
I regret so, the only way out is to stagger over 13/14 and 14/15 tax years.
Customer: replied 2 years ago.

Hi Keith, when I model these shares it says I don't have to pay any tax, are you able to explain this? Sorry I'm just confused! Thanks, Cressida


Expert:  bigduckontax replied 2 years ago.

So am I Cressida as only half the document can be displayed and it won't scroll. I need to see the top half too. I have tried to expand it but without success.

Customer: replied 2 years ago.

Hi Keith does this work? Thanks, Cressida


 


Expert:  bigduckontax replied 2 years ago.

No, I regret I am still no wiser. I have already mentioned that as non-qualified stock options any gain on sale will be subject to CGT. The way round this is to stagger your sales over a number of tax years to utilise your use it or loose it Annual Exempt Allowance (10.9K this tax year, 11.1K next). Your employer is the one who claims these stock options are tax free and you must enquire as upon what grounds they, or their professional advisers, have come to that conclusion.

 

Sorry Cressida, but the situation seems utterly confused at this stage.

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