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Sam, Accountant
Category: Tax
Satisfied Customers: 14154
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Guys - I am business owner in the UK. As part of a round

Customer Question

Hi guys -
I am business owner in the UK. As part of a round of financing, the new investor is offering a warrants package (that triggers if company value goes above a certain threshold) to management.
How are warrants taxed in the UK? Is there things we can do to optimize impact (especially from an income tax perspective)?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Thanks for your question
Warrants are taxed under the capital gains tax regime in the UK - (as operate on the rise and fall of share value) if they are held by the individual and sole trader or partnership - if a limited company then corporation tax.
But as these are being offered to management - this sounds very much like a personal investment on each individual within the business (so capital gains tax)
If however this is operated through the business then you may consider operating a valid scheme recognised by HMRC - but this is a complex area and you would need a financial adviser (rather than aCustomerto run through those options)
But as not available to ALL employees may hit a problem with getting approval - and you then would be charged income tax rather than capital gains (so you do need to establish who will run this scheme to establish the tax regime it will fall within.
The best way to minimise the tax exposure is that each individual pay market value for the shares (invest their own money) so that any gain has the full benefit of the purchase price to offset from it (but would make less - but also lose less!)
For capital gains the first £11,100 per year is exempt for every individual.
And of course losses can be offset against gains - is these are already held from earlier capital gain disposals on which a loss arose.
I would be inclined to shop around for similar schemes and consult with a financial adviser to compare the admin requirements to operate such a scheme - how each meets with HMRC approval and also what risks there are to the company and the individuals - and why this would only be offered to management and not all employees.