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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 have a few questions related to CGT Section 104 holding on

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I have a few questions related to CGT Section 104 holding on company shares that i received from the company I worked with in the last 19 years. The shares involved are from exercised stock options, restricted stocks and employee purchase plan.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

Can you let me know what the questions are please.

Customer: replied 1 year ago.
I have been receiving company stocks from the company I worked for in the last 19 years. Some of these shares has already been exercised back in Oct 2004. Are these shares also need to include in the Section 104 holdings? As these shares had a very low exercised cost when exercised in 2004, if bring into Section 104, will bring the cost of the whole portfolio down a lot and hence I will have to pay more CGT.
Expert:  TonyTax replied 1 year ago.

Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.

Customer: replied 1 year ago.
Hi, can you tell me how long will it take?
Expert:  TonyTax replied 1 year ago.

It will take about 20 minutes.

Expert:  TonyTax replied 1 year ago.

Take a look at page 2 of HS284 here for information on share identification.

Any shares acquired and retained are added to the Section 104 pool. In the case of shares acquired through option exercises, the cost will be the value of the shares when they were exercised if the option scheme was a non-qualifying one and you paid income tax and nic on the profit. If the option scheme was a qualifying one, the cost of the shares acquired will be what you paid for them when you exercised the option. The Section 104 pool average cost per share fluctuates as shares are added.

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

Customer: replied 1 year ago.
in Section 104 holding, it doesn't matter that it was exercised in 2004? I thought I read somewhere about only shares after April 2008 are included in Section 104 holding.
Expert:  TonyTax replied 1 year ago.

See page 2 of HS284.

The shares held at 5 April 2008 form the start of the Section 104 pool.

Customer: replied 1 year ago.
I also read about the 30 days buy and sell which falls outside the Section 104 holding. I just want to clarify my understanding. I have some restricted stock that are vested twice a year and I know which date it will be vested. So if I sell a number of shares (N) 30 days prior to restricted stock vested date, those N shares are not subject to Section 104 Holding calculation. The gain or loss on disposal is the different between the net disposal proceeds and the acquisitions cost?
Expert:  TonyTax replied 1 year ago.

If you look at page 2 of HS284 , it sets out the order of identification of shares when a disposal occurs.

The restricted stock shares do not form part of the Section 104 pool until the restrictions are lifted.

Your understanding of how the gain or loss is calculated is correct.

Customer: replied 1 year ago.
following this, say if I sold 500 shares at $100 on 1st Apr. On 15th Apr, I have 500 RSU vested at $120, so does that mean I have a lost of $120x500 - $100x500 = $10,000 that I can use to set against other Capital Gain?
Expert:  TonyTax replied 1 year ago.

When the shares were vested, did any restrictions remain after that date?

Customer: replied 1 year ago.
I'm not too sure what you mean by restrictions but basically when it is vested, I am free to sell them anytime. The income tax will have been paid.
Expert:  TonyTax replied 1 year ago.

OK. Let me take a look at that. The cost of those shares for CGT will be the sum of that you paid for them and the amount on which you paid income tax and NIC. Usually, that will equate to the value of the shares on the day they were vested.

Customer: replied 1 year ago.
thanks. I may need to go out in 5 mins. Can we continue this conversation later?
Expert:  TonyTax replied 1 year ago.

We can.

Customer: replied 1 year ago.
great, this is the first time I use this, so when I come back, I can login and will be connected back to you?
Expert:  TonyTax replied 1 year ago.

Yes. The question will remain open to you for as long as you wish.

Customer: replied 1 year ago.
thanks.
Expert:  TonyTax replied 1 year ago.

If you look under the heading "Shares subject to restrictions on disposal" on page 4 here, you will read that shares acquired with restrictions are kept separately from those acquired without restriction. So, I see no reason not to match the vesting shares acquired within 30 days of a previous disposal. Something dramatic would have had to have happened for a $20 per share movement to occur in 30 days.

Any vested shares sold on the day of exercise to fund the tax and NIC liability would not reach the Section 104 pool or be matched with a disposal within the previous 30 days.

Customer: replied 1 year ago.
Hi, I am back. I have read the page you mentioned. Can I just double check my understanding about the cost of those shares will have to include income tax paid? For example, 10th Apr I had 100 shares of RSU vested, i.e. becomes non-restrictive, but 55 of those 100 were sold at market price on that date to pay for the income tax of 45 shares (which is the # ***** sellable), then the cost of those 45 shares = 55 x market value then?
Expert:  TonyTax replied 1 year ago.

If you were charged to income tax and NIC on the option profit (the difference between the value of the shares and what you paid for them) then the cost for CGT purposes is the sum of the what you paid for them and the amount on which you paid income tax and NIC. That will equate to the value of the shares on the day they vested. There will be no gain on the shares sold as they were bought and sold on the same day. The remaining shares are added to the pool.

Customer: replied 1 year ago.
these are not options, so I don't need to pay anything apart from income tax. So at the time of vested, some of the vested shares will be sold on the day to pay for the income tax. I understand there will be no gain on these shares sold as they were bough on the same day but the remaining shares that as you mentioned have to be added to the pool, what is the cost? is it the #shares need to sell in order to cover the income tax?
Expert:  TonyTax replied 1 year ago.

The cost is the value on the vesting day, ie the amount on which you paid income income tax and NIC, not the tax and NIC itself, assuming you paid nothing for the shares. The fact that you retained them doesn't mean you didn't pay income tax and NIC on those shares you retained.

Customer: replied 1 year ago.
ok, I think I got it. basically the cost is the value (market price) on the vesting day of those shares I retained. And those shares will go into Section 104 holding. If I have disposed some shares from my Section 104 holding 30 days prior to these restricted shares vested, i.e. out of restriction and go into Section 104, I can use the 30 days scenario to calculate the gain/loss instead of the general Section 104 holding that average all shares in the holding.
Expert:  TonyTax replied 1 year ago.

That's correct.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Thanks for your help. I think I have asked enough for the price I am paying for. You have been very helpful.
Expert:  TonyTax replied 1 year ago.

Thanks.

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