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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I had an option on 1606 shares of my employer's US parent at

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I had an option on 1606 shares of my employer's US parent at ~ $22.17 per share that I executed at ~ $91.3352, the market value of the execution was $91.635. This was done through a US broker as normal with these stock options. The broker sold sufficient shares "simultaneously" to cover the 1606 @$22 plus the tax. In total 913 shares were sold and 693 were issued to me and held in the US broker account and I didn't sell any further shares that tax year. The broker sent me a cheque for $47,739 converted to £ to cover the tax. I included on my tax return an income of £65,401 being the gain of $111,287 converted to £ and duly paid income tax on this amount basically the $47,739 +a few pounds. HMRC have now been in contact and have said that I should also have done a CGT calculation on the sale of the 913 shares. Is this correct? What would be the basis of the gain as the 1st part was to pay for the shares, and the 2nd was to pay for the tax. The shares were transacted all within a few seconds.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

HMRC are correct because there has been a disposal for CGT purposes. The cost of the shares disposed of is the sum of what you paid for them and the gain on which you paid income tax. That will probably equate to the market value of the shares on the day you exercised them so there should not be much of a gain, if there is one at all. The cost for CGT purposes of any shares you retained is calculated on the same basis. Write to HMRC and give them a calculation of the gain or loss.

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

Customer: replied 1 year ago.
the market value was $91.635 and they were sold for $91.332 so they were sold at below market, so there would be zero liability?

You have a capital loss of $303 which you can offset against gains you made in the same tax year. If there were none, you can carry it forward to use in future tax years. You will have no CGT to pay. If it were not done the way it is, you would end up paying income tax and CGT on the same gain, ie double taxation.

As you have paid the income tax due on the shares you retained, you will only pay CGT in future if you sell them for more than their CGT cost, the method of calculation for that being given in my previous post.

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