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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15976
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a question relating to whether something should

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Hi, I have a question relating to whether something should have been considered as income tax or CGT, or even been exempt from both - A couple of years ago the company i work for was acquired by another business. I had unvested stock options (unapproved share scheme as far as HMRC is concerned as it is a US company and the stock options were for stocks listed on NASDAQ). At the day of aquisition those options were immediately exercised and sold, resulting in a cash out to me of ~£52k. This cash out was paid through payroll, meaning it was taxed as if it was PAYE income.
Do I have a case to claim the income tax back from HMRC as it should have been treated as CGT not income tax? And indeed, if I read correctly the first £50k would also be CGT exempt, so I should have only paid CGT on £2k and not 40% income tax on the whole payment?
Thanks in advance!
Hi. Let me take a look at this and I'll get back to you in a bit.
The tax treatment of your option exercise was correct. It is an unapproved scheme. Most US company schemes are unapproved since they aren't set up to comply with the UK rules governing share option schemes. If you had held on to any of the shares, they would have had a base cost for Capital Gains Tax purposes equal to the value on the day they were exercised or the sum of the amount you paid for them and the amount on which you paid income tax. Take a look here for information on the tax treatment of unapproved share option schemes. The £50,000 exemption applies to Employee Shares which you can read about on pages 4 and 5 here. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Many thanks. I actually read that same page earlier today and the sentence that made me curious is this one:"If an unapproved option is exercised and the shares sold on the same day, there will normally be no capital gains tax to pay."
There wouldn't be any CGT to pay as the value of the shares on the day of exercise is your base cost for CGT purposes, ie the day you sell them. Income Tax is paid on the difference between the sum you paid for the shares and their value on the day of exercise.
Customer: replied 1 year ago.
Got it! Thanks for your help.Stuart
Thanks. Would you mind rating my answer before you leave the site please.
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