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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have option shares provided by my employer which I can

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Hi, I have option shares provided by my employer which I can exercise early but at the cost of paying income tax on any profits. The profits will be in the region of £20,000.
After I sell the shares I will be leaving the company and going self employed. In my first year of self-employment I don't expect to be earning anything significant, so the plan is to sell the shares after the new tax year starts so I can get £11,000 of the profits tax free.
I'm itching to leave and so my question is whether there is a way to sell them before April 5th and still allot them to next year?
Thanks in advance.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer and pleased to be able to help you with your question. Can you be a bit more specific please? What sort of share option plan is involved? Once I know this I can assist you further.
Customer: replied 1 year ago.
Hi Keith, thanks for getting in touch. The share scheme is called, 'ShareSave' and is ran by computershare.comIt was a 3 year plan, however my company merged earlier this year so they have allowed us to cash in early, but we'll need to declare income on any profits.Thanks.
Expert:  bigduckontax replied 1 year ago.
I am so sorry, but you need to be a bit more specific before I can help you. Is it a SIP, Save as You Earn, Company Share Option Plan EMI etc?
Customer: replied 1 year ago.
It's ok, my fault, it's a save as you earn (SAYE) plan.
Expert:  bigduckontax replied 1 year ago.
Here is the guidance from Gov UK web site:
'This is a savings-related share scheme where you can buy shares with your savings for a fixed price.
You can save up to £500 a month under the scheme. At the end of your savings contract (3 or 5 years) you can use the savings to buy shares. The tax advantages are:
The interest and any bonus at the end of the scheme is tax-free
you don’t pay Income Tax or National Insurance on the difference between what you pay for the shares and what they’re worth
You might have to pay Capital Gains Tax if you sell the shares - but not if you put them into an Individual Savings Account (ISA) or pension as soon as you buy them.'
Pinsent Masons [Out Law], Solicitors, advise [edited]:
'No income tax (or NICs) is charged on the exercise of an option after three years – or if it is exercised within three years of grant as a result of the employee leaving in one of the specified “goodleaver” circumstances. No income tax (or NICs) is charged on the exercise of an option in consequence of "company events" unspecified circumstances.
If and when the shares are sold by the employee, ordinary capital gains tax (CGT) rules apply on any gain or loss made by that sale, except that the base cost of the shares is treated as the option exercise price and not the market value of the shares on exercise. CGT is charged at 18% for gains within the basic income tax band after taking into account any annual tax exempt amount, and at 28% for gains above this level.'
So you see if you dispose of the shares as a 'goodleaver' then no Income Tax (IT) is involved, just Capital Gains Tax (CGT) on any gain made. You have an Annual Exempt Amount (AEA) of 11.1K, not cumulative, to offset any gain, the balance being taxed at 18% or 28% or a combination of the two rates depending on your income in the tax year of sale. You plan to sell next tax year when your income will be low may well confine the CGT rate to 18%. However you indicate that the capital raised from the sale is under 11.1K anyway so the AEA will save you from any CGT. In taxation terms the answer is a lemon providing that you are a 'goodleaver.' Pinsent Masons advise that a 'goodleaver is:
'Normally, a share option cannot be exercised until after the bonus date. That can change if someone is deemed a good leaver, meaning that they left through illness, disability, injury, redundancy, retirement or death. Options can also be exercised earlier in the case of certain corporate events such as a sale.'
I do hope that I have shed some light on your position.
Customer: replied 1 year ago.
Thanks for the details, my situation is different to the examples you've provided. As its come about because of a merger. It's 16months into the 3 year option period.And we have been advised that we will need to pay income tax (£20,000 will be my profit)The only part of the pinsett and masons section that could be applicable is when it states, "No income tax (or NICs) is charged on the exercise of an option in consequence of "company events" unspecified circumstances"....but it doesn't fill me with confidence as its not specific.Thanks.
Expert:  bigduckontax replied 1 year ago.
I would disagree and suggest that a merger is indeed a corporate event. My immediate reaction is who gave you that advice? Out-Law.com are pretty clear that SAYE schemes are not subject to IT. Barclays advise that a sale or a merger is indeed one of the 'company events' so I am of the opinion that you would be a 'goodleaver.' Furthermore HMRC in guidance ESSUM39200 says:
'Condition B is that option is exercised before the third anniversary of the date of grant for any of the mandatory provisions provided for in paragraph 34 (2) - injury, disability, redundancy or retirement, a sale of business that is a TUPE transfer or a change of control of the employing company (ESSUM35610).'
I am of the opinion that you are covered. If your gain is 20K then only 8.9K will be exposed to CGT, worst case scenario is a tax bill at 28% of some 2.5K, but 1.6K is a more realistic figure.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 1 year ago.
Thank you for your support.