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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi, I have some share options in a company I have worked for

Resolved Question:

Hi, I have some share options in a company I have worked for for the last 12 years. The options are due to run-out shortly, so I am likely to need to exercise the options and purchase the shares. The Share option scheme was not an IR approved scheme, so I believe I have to pay full Income Tax and NI (@41%) on the difference between my option price and the estimated market value at the time I buy the options, and then CGT on the difference between that estimated market value if I later sell the shares at a profit. Is this correct? A friend has suggested that I only have to pay CGT on the difference between my option price and the estimated market value when I purchase them - this sounds nice, but I believe it is incorrect. Any advice would be appreciated.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

If your scheme is an unapproved one, you are right in your belief that you will pay income tax and national insurance contributions on the difference between the open market value of the shares when you exercise them and what you pay for them. The sum of the amount you pay for the shares and the amount you pay tax and NIC on then becomes your cost for Capital Gains tax purposes.

If the scheme was an approved one, you would not pay income tax and national insurance contributions. Your cost for CGT purposes would be the sum of what you paid for the shares when you exercised them plus any sum you may have paid to your employer when the option was granted to you.

Take a look here for information on share option schemes and tax.

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

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15764
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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