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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am an employee in a business that is about to be sold.

Customer Question

Hi
I am an employee in a business that is about to be sold. It is an SME and has no employee share scheme in place but the owners have agreed that I will get 5% of the sale proceeds which is a mixture of cash and shares in the acquiring company. My employer company has 100 shares issued at £1 each. I have suggested that I am either given or pay for 5 shares at that rate on the understanding that I will then be subject to CGT on the difference between that price and the cash amount price on the sale of the business. I would also be granted shares in the acquiring business with no tax implication until I sell them. My employer has been advised that I will be subject to income tax on the cash gain unless I have held the shares for 12 months - is this true? I am aware of this for entrepreneurs relief which I know I cannot get but does it also apply for CGT?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

The people advising your employer are probably referring to the Enterprise Management Incentive Scheme (EMI) which you can read about here. You would need to hold an option to buy shares at a discounted price for at least one year before exercising the option and benefiting from the tax advantages that come with EMI options, ie no income tax.

If your employer gives you a percentage of the disposal proceeds in cash, that will simply be additional salary on which you will pay income tax and national insurance contributions and the employer will pay employer national insurance contributions. You cannot simply pay a discounted price for shares one day and sell them the next I'm afraid. There have to be formal structures such as the EMI scheme.

I hope this clarifies your situation but let me know if you have any further questions.
Expert:  TonyTax replied 1 year ago.
Hi again.

It's been a few days since I answered your question. Is there anything you need further clarification on?

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