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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4351
Experience:  FCCA FCMA CGMA ACIS
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Can you work out the tax I will be due on an EMI share option

Customer Question

Can you work out the tax I will be due on an EMI share option scheme?

I have tried to attached my EMI agreement but the system won't allow me to, can you let me know the best way to get the agreement to you?

Thanks

Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
You would normally be subject to Capital Gains Tax (CGT) on the difference between the option grant price and the final selling price, but most EMI share option schemes involve or even require sale on the date the option vests. Thus CGT would be applied to the gain on the vesting price and the selling price, but as the vesting and the sale are simultaneous there is no gain to tax.
On the other hand if there is a gap between vesting and sale than any gain made in that gap is liable to CGT, but you do have an Annual Exempt Amount (AEA) of 11K [14/15 rates] to offset this. CGT is levied on the gain less the AEA at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
I do hope I have helped shed some light on your taxation position in respect of EMI share options.
Customer: replied 2 years ago.

What about the Entrepreneur Relief, how does it affect the tax due?

Expert:  bigduckontax replied 2 years ago.
Entrepreneurs' Relief, if you are entitled, reduces the rate of CGT to a flat rate of 10%.
To be entitled you must:
'You’ll qualify if you dispose of any of the following:
all or part of your business as a sole trader or business partner - including the business’s assets after it closed
shares in a company where you have at least 5% of shares and voting rights (known as a ‘personal company’)
assets you lent to your business or personal company'
That is the advice from the Gov UK web site which you can find at
https://www.gov.uk/entrepreneurs-relief/eligibility
Customer: replied 2 years ago.

There was a change to the 5% share rule applied in 2012, afraid this answer is not up to date.

Expert:  bigduckontax replied 2 years ago.
Yes, there was indeed a change removing the 5% rule from 2013.
I would gently point out that my original answer quoted verbatim the Gov UK's latest advice upon the subject.